Even if you get a great deal on the price of your new car, a bad financing agreement can cost you thousands of dollars in additional interest payments over the life of your loan. These tips can help you get the best possible deal on your auto loan.
Shop for Your Loan First
Auto dealerships rarely offer the best rates on financing. Before you even start looking at cars, start shopping around for financing. Many banks, credit unions, online lenders, and even some auto insurers offer competitive rates on auto loans. However, try to get all your loan shopping done within a two-week time period. Whenever you apply for credit, it puts an inquiry on your credit report that can lower your score. If you do all your applying within two weeks, it will count as a single inquiry.
When you find a deal you like, get prequalified for a specific amount. Once you have reached an agreement with the dealer and have a written contract in hand, then you can ask the dealer if they can offer you better terms on financing.
Focus on the Total Amount of the Loan
You should avoid the temptation to borrow more money than you have budgeted to spend by focusing on the amount of the monthly payment, rather than the total amount of the loan. Do not opt for a longer-term loan, so that you can buy a more expensive vehicle for the same monthly payments. This will cost you a lot more money in interest payments over the life of the loan.
Shop Around for the Best Deal
Lenders do not have to offer you the best rate that you qualify for. Seek out offers from multiple lenders and let them know that you have other offers. When lenders have to compete for your business, they are more likely to offer you a lower rate.
Read the Contract
The devil is definitely in the details when it comes to financing. Do not let lenders pressure you into signing something right away. Take the paperwork home and read it carefully. If the lender you are considering has a problem with this, walk away from the deal.
Pay particular attention to terms such as mandatory binding arbitration, variable interest rate, and prepayment penalties. You should also make sure that everything the lender promised you is included in the contract.
Avoid Conditional Financing
Some dealerships may sell you a vehicle with financing that is conditional or contingent. Avoid this type of financing. The terms of your loan could be changed significantly from what was originally discussed. If a dealer can not offer you an unconditional financing contract on the spot, either find other financing or do not purchase until the terms of the deal are finalized.
Check Your Lender’s Reputation
Look for online reviews from past customers. Check the lender’s Better Business Bureau rating. Research the lender with your state attorney general’s office, the office of consumer affairs, and any other state agencies that regulate lenders. Most businesses will have some customer complaints, but excessive numbers of complaints could be a red flag.
Check Your Credit
It is important to know how to check your credit score because your credit score plays a large role in the terms and interest rate you will be offered on auto financing. You should also request a copy of your credit report from Experian, Equifax, and TransUnion. You can get one free copy from each major credit bureau per year at www.AnnualCreditReport.com. You can request your credit score for a small fee, but various services on the internet will provide you with a free score.
Review your credit reports for any inaccurate information. If you find mistakes, you should report them to the credit bureau that issued the report. If your credit is not in good shape and you do not have to buy a new vehicle right away, you can get a better deal by waiting until you have improved your credit to apply.
The total cost of your vehicle purchase can be significantly impacted by the terms of the financing agreement you make. Doing your research and shopping for the best deal before you make any agreements can save you thousands of dollars.