Everyone wants to get a great deal on their car purchase, but so many people get a good deal and get a bad car loan. The good news is that getting a good car loan is easier than you think if you keep the tips below in mind. Then, when you head to the dealership to shop for your new ride, you’ll be able to get the best rate and deal possible.
Know Your Credit Score Before You Car Shop
If you’ve been delaying finding out your credit score, you need to do it now before you buy a car. The reason is that most people can get a car loan; you’ll just pay much more interest if your credit stinks.
If your credit isn’t excellent, you’ll probably be thrilled you got approved, so you’re not as likely to look for a cheaper loan. Dealers understand that people with so-so credit usually don’t push for a lower rate; they just want to get approved.
Remember that car dealerships often run ads for 0% interest, not telling you that you need 750 credit to get it. After the best promotions, interest rates rise fast. If you have credit under 650, don’t be surprised if you have a 10% interest rate.
The worse your credit score, the more critical it is to shop for a car loan. Go to your local bank, check a credit union, and check with at least one online car loan lender. Sure, you’ll have to pay more interest with a 610 credit score, but that doesn’t mean you have to grab the first offer they give you.
Get Financing Quotes Before You Go To The Dealership
If you have excellent credit, you’ll probably get their best offers, and few lenders will be able to match them.
For those with mediocre credit, look at online car loan lenders before you walk into the dealership. You’ll need to do a credit app on your phone or PC, and they’ll tell you what your rate is and the maximum amount you can borrow.
The nice thing here is you’re not locked into using that loan if the car dealership offers a better rate. But at least you can go to the dealership knowing you have at least one deal in hand.
As we mentioned above, small banks and credit unions may offer the person with bad credit a better interest rate on use and new cars. And, you may be able to use your pre-arranged financing when you go to the dealership to get a lower rate.
Pick The Shortest-Term Loan You Can
Shorter-term loans have loan rates and high payments. That’s what you need.
When you go into the dealership and say you need to finance your new car, the salesman will try to sell you on the monthly payment, not the price of the vehicle. When they do this, they can show you lower costs by dragging out the length of payments.
Suddenly, a $450 a month car payment is $350, but the price is the same; you’re just getting hit with more interest on a longer-term loan.
Also, the longer-term loan usually has a higher rate, so try to stick to a three or four-year loan if you can.
Make A 20% Down Payment
You also can come out ahead on a car loan by putting down 20%. Now you have equity in the car, and you won’t end up owing more than the car is worth. This might seem simple, but most dealerships don’t even require people with average credit to put anything down.
Driving away with no money down sounds fantastic, but if you suddenly need to unload the car, you may owe more than it’s worth, so you can’t sell it.
Follow these proven principles, and you’ll get a great deal on your next car loan.