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9 tips to get a good deal on your first auto loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial choices by offering you financial calculators and interactive tools as well as publishing objective and original content. We also allow users to conduct research and compare data for free to help you make sound financial decisions. Bankrate has partnerships with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site come from companies that pay us. This compensation could affect how and when products are listed on this site, including, for example, the sequence in which they appear in the listing categories in the event that they are not permitted by law for our mortgage, home equity and other products for home loans. However, this compensation will affect the information we publish, or the reviews that you see on this site. We do not include the vast array of companies or financial offerings that could be accessible to you.
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6 min read published September 30 2022
Written by Allison Martin Written by
Allison Martin’s work began over 10 years prior to that as a digital content strategist. Since then, she’s been featured in a variety of top financial outlets such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.
Edited by Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate since the end of 2022. He values transparent reporting that allows readers to confidently land deals and make the best decisions for their financials. He specializes in small business and auto loans.
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Preparing to buy a car in the beginning could be to be one some of the more stressful situations out there. With so many aspects to think about when buying a car to consider, the loan may fall by the wayside. Don’t let it. Finding a car requires a lot of research- but the more you do now you do, the better off your financial situation will be in the future. An interest-free rate can be the only way to an affordable car, regardless of the vehicle you choose to purchase. 1. Be honest with your budget The biggest concern when buying a car should be the price. Weigh how much you will pay each month and the overall interest paid to . You should also think about the — expected maintenance of the vehicle, fuel and insurance all contribute to the amount you pay. Experts recommend spending no more than 10% of your income on a car. Make use of an app to estimate the monthly installments and total interest paid. Check out resources such as Edmunds and Kelley Blue Book to see the amount you will spend on the cars you are interested in buying. The most important thing to remember is
Assess your financial situation to ensure that you’re not spreading your budget to the limit.
2. Keep in mind that longer terms are an increase in cost. The price of a automobile is increasing. It’s not hard to find an loan that lasts for six or seven years, however they do have a significant disadvantage. A longer loan period does result in a lower monthly payment -this could be advantageous if you are trying to stay within your budgethowever, it also means higher interest rates overall. Even if you purchase an inexpensive vehicle, you can quickly become in debt, or pay more than the car is worth. For that first car loan pick the shortest period you can afford every month. It could mean you need to reduce your spending in other areas, but it’s by far the most secure option to ensure that you don’t end up owing more on your car than it’s worth. It is the most important lesson to take away
You’ll likely save a bundle in interest by choosing a shorter loan duration and reduce the possibility of being upside down on the car loan.
3. Check the credit score and report Your credit score is the most important element that lenders take into account when determining your interest rate. To secure a great rate, you’ll need good credit. You will also require a track record of timely payments. If you’ve not been able to establish your credit score or history it will be a difficult time finding a good deal. There may be a need to apply the car loan, which will mean more interest. If you’re able to put off paying on your car loan attempt to build a history of on-time payments. A low ratio of debt to income shows lenders you can handle your finances. Paint a good financial picture for your lenders to score an attractive deal. Take away
Improve your credit score prior to applying for an attractive interest rate in an auto loan.
4. Choose for more than one lender Ccomparing lenders is just the same as comparing car prices to get a fair bargain. There are a variety of lending options to choose from. include: : If you’ve got a low or no credit history, you might be qualified for a first-time buyer program offered by local credit unions. You’ll have to be a credit union member to apply for loans So, inquire about the best ways to join before making any moves. Big banks: Consumers with an established connection to a conventional institution may be eligible for an auto loan. As a first-time car buyer you could be charged higher interest rates. Online lenders: Online lenders typically provide less stringent criteria for eligibility than traditional banks. This is good news for those who do not have credit history or a high score, however you should anticipate a higher interest rate to offset the risk of default posed to the lender. Marketplace lenders: These platforms feature an extensive network of lenders. Submitting an application shares it with the network , so you can see potential loan offers from lenders that could be a good match. Capitalist lenders can get financing through or finance company belonging to the manufacturer of your vehicle. They often feature auto loan programs for currently enrolled students and recent college graduates. Every lender offers different rates and ways of determining who is eligible for what terms. It is critical to shop around and get in touch with several lenders. This allows you to see what you can qualify for, how much you are able to spend, and how much you’ll be paying each month. Key takeaway
Shopping around helps ensure you get the best deal on a car loan.
5. If you’re preapproved, shopping around offers an added benefit that is it could end up with a period of for up to 30 days. When you ask for preapproval the lender creates an inquiry that isn’t going to impact your score on credit. It gives you time go to the dealer and test automobiles without the stress of needing to secure financing. Being preapproved gives you an upper hand in negotiations. Dealer financing is typically costly because dealers increase their rates to make a profit. However, if you go to the dealership with a preapproval letter and a preapproval letter, you might be in a position to negotiate a great price on financing in-house- if that is your preferred route to take. Some dealers will also provide the choice between or low-interest financing. If you’ve already achieved the best rates from another lender the choice is clear: Reward yourself by recouping the cost. What’s the most important takeaway
Getting preapproved helps narrow the list of lenders you could consider and reduces the effect of your credit rating.
6. Choose between used, new or leasing Lenders offer different rates on automobile loans for . Lessors use their own method to calculate the monthly installment — called the factor rate and it is important to investigate the factor rate prior to taking this decision. If you’re planning on purchasing, know that new cars typically come with lower rates across the board. However, new cars are also significantly more expensive and are likely to decrease in value more quickly due to depreciation. Thus, although you might have to pay higher interest rates on a used vehicle, you may still save money. What’s the most important takeaway
New cars typically come with more affordable loan conditions than used vehicles However, the total cost will be higher.
7. Check out manufacturer specials Most companies offer first-time buyers programs. Some even offer special deals for students in college and recent grads. If you are planning on purchasing a car for the first time or have the money or credit that can back it up, and are interested in financing through your home, it makes sense to see if you can get a little money off. Manufacturers also offer rebates, and leases with special terms on new models. Keep an eye out for these. You’ll be limited in the items you can purchase and how you can afford it. But if you already have a clear idea of what you’d like and excellent credit, manufacturer offers can save you money on the first car loan. What you should take away from this is
Contact the dealer to see whether you’re eligible for incentives on financing if you’re buying a new car.
8. Use a co-signer or co-borrower If you don’t have great credit, there is a possibility of getting a good deal. The lender will consider the credit score of both parties in deciding whether or not to finance your vehicle. A loan to the vehicle, however you will be liable for the loan in the event that you are unable to make timely payments. A co-borrower, however, shares ownership of the vehicle and shares the responsibility for the loan together with the borrower. No matter which option you pick, the individual should be able to demonstrate excellent credit and consistent source of income that is in line with the lender’s minimum threshold for approval. What’s the most important takeaway
A co-signer or co-borrower could increase your chances of approval and allow you to get the best deal on the car loan.
9. You should have a substantial down payment. Once you’ve determined the amount you’ll need, start that’s at least 20% of vehicle’s total cost. If you’re not able to pay this amount, aim for a down payment of minimum 10%or whatever you are able to manage to afford. Try Bankrate’s tool to find a figure that works for you. It’s tempting to get an expensive car however, first-time buyers — and every car buyer must make a down payment to reduce the amount they must finance. A larger down payment improves the chances of getting a favorable interest rate, reduces your monthly payments and decreases the interest you’ll pay during the loan’s term. The most important thing to remember is
A bigger down payment can allow you to qualify to get more favorable loan terms. Additionally, your monthly payment will be less expensive.
The next step to finding a fair rate on your first car loan is to stay in the game and compare. You could get a competitive rate by comparing lenders, putting aside a down payment and improving the credit rating. Find out more
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Written by
Allison Martin’s work started over 10 years ago as a digital content strategist. She’s been featured in a variety of top financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.
Edited by Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate since late 2022. He believes in clear reporting that helps readers successfully get deals and make best decisions for their financials. He is a specialist in auto and small business loans.
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