How to Get the Best Rate on Your Car Loan

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A two or three year auto loan used to be fairly standard, but now lenders are offering loan terms that can last five or as much as seven years. With so many payments ahead, the interest rate on the loan can make a huge difference. Even one or two percentage points can mean the difference between spending a fortune and saving thousands of dollars. When it comes to getting the best rate on your car loan, there really isn’t any mystery. The first step to getting a great car loan is to be informed.

Know Your Credit Score

Knowing what is on your credit report, and what your credit score is, can help you get a better interest rate. Before you start car shopping, get your credit report and scores from all three of the major credit reporting agencies. Review each thoroughly, looking for errors or old information which should have been dropped from your report. Take steps to correct anything that is wrong or out of date before car shopping. The better your credit report and credit score look, the better loan terms you’ll be qualified for.

Comparison Shop for the Best Loan Terms

Do not go into a car buying situation feeling like you’re being held hostage by the dealership’s finance guy. In fact, you may even get a better deal by not working with him at all. Get pre-approved by your own bank or credit union before you begin shopping for your dream car. This removes a lot of the stress and suspense from any visit to the showroom. There is no waiting while the finance department puts together a deal for you. You walk into the situation knowing how much you have to spend and what interest rate you’ll be paying. Having this kind of information beforehand takes the pressure off and lets you focus on getting the right car.

If you do not have an opportunity to get pre-approved financing from your bank, or if your bank does not offer this option, you may have to accept the best deal the financing department at the dealership can come up with. Try to negotiate for a lower interest rate by making a bigger down payment or shortening the term of the loan. Be cautious, however, because shortening the term of the loan may mean a bigger monthly payment. Before committing to anything, make sure you are comfortable with the monthly payment amount. If you must initially finance through the dealership, take the loan to your bank at some point in the subsequent weeks. It is not unusual for a bank to offer to knock off a percentage point or two in return for taking over a car loan.

Choose a Different Car or a Different Dealership

If a small dealership isn’t offering attractive terms, consider trying a larger dealership which might have relationships with more credit lenders and can therefore display a little more flexibility. Also, don’t hesitate to consider other car options if you can’t seem to reach a financing deal on your first choice car. Know what you’re willing to compromise on, what features you can’t live without, and how much you’re willing to pay before visiting the car dealership so you won’t feel undue pressure when it is time to make a decision.