5 Tips For Seeking The Best Car Loan
Posted on: 18 December 2017
Most people get excited at the prospect of buying a new car, and rightly so. But that excitement can turn to frustration if you're not prepared, especially if you aren't familiar with the process of obtaining auto loans. With these five simple tips, you'll be well on your way to getting the best financing possible so you can buy a car that's right for you.
Know Your Credit
Many people avoid checking their credit before purchasing a car because they're under the false notion that doing so hurts their score. This is a myth, and it's actually been shown that checking your credit frequently increases the likelihood that your score will go up. But it's strongly advised that you check your score before applying for a loan for several other reasons.
First, in most instances, you can still get a car loan if your credit is bad, but the interest rate is influenced by your score. So knowing what your score is can let you know if you'll qualify for the lowest rates. Secondly, if there are mistakes on your credit history, now would be the time to find out so you can do what needs to be done to clear things up.
Understand Your Loan Options
Before setting foot on the car lot, it's important to understand the two different ways you can apply for your loan.
The first option is to find your own lending institution ahead of time. In this scenario, you find a bank or credit union, get pre-approved for the loan, and talk with them about the loan terms, interest rates, and other variables. If you're not happy, you can keep shopping around. If you are happy, the lender can send you out the door with a commitment letter to take to the dealership.
The second option is to apply through the dealership. It's a similar process, but you're essentially letting the dealer find a lender for you. Just be aware that these loans are sometimes sold to the dealer, and they turn around and "sell" you the loan—which means they'll probably increase the interest rate in order to make a profit on finding you the loan to start with.
Lenders are under no obligation to give you the lowest interest rate, so it pays to shop around and negotiate the terms.
Go with a Short-Term Loan
Most dealers know to negotiate with you using monthly payments, not the total price of the car. This is actually a good thing because at the end of the day, what you can afford comes down to what you'll pay each month.
But here's the thing—if you're getting the loan through the dealer, and they start tossing out numbers, don't automatically go with the lowest one. While it's tempting to keep your payments as low as possible, they're usually low because those payments are being stretched out over a longer term. They have higher interest rates, which means you'll be paying more over the life of the loan.
If you can go with a short-term loan, your monthly payments will be higher, but the interest rates will be lower, saving you the most money in the long run. And you can always offset those higher monthly payments with a larger down payment.
See if You Qualify for a Zero-Percent Loan
If your credit is excellent, some dealers offer loans on certain vehicles with little to no interest. These don't make up a large percentage of sales, and they're generally reserved for cars or trucks that aren't moving very quickly. But it is worth investigating.
Use Cash for the "Extras"
Sales tax, documentation fees, trade-in fees, warranties, and registration fees are often rolled in with the final price. But if you have the cash, paying for these extras out of pocket can make your payments lower. This can also prevent you from being temporarily upside down on your loan when you drive off the lot.
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