Getting Better Auto Loan Rates 101

If you’re in the market for a new vehicle, you’ll need to know more than a little bit about financing. Vehicles are so expensive today that it is almost impossible to purchase one outright. This necessitates you finding an auto loan. Numerous lenders are more than willing to offer you a loan. However, you’ll need to know what constitutes the best deal, as well as what you need to do to ensure that you receive the best offers.

Credit: Your credit history is the single largest contributing factor to the auto loans you are offered. If your credit is less than sterling, you’ll need to take steps to bring it up to par. Start by obtaining a copy of your free credit report from the three major credit bureaus. These are Equifax, TransUnion and Experian. By federal law, you’re entitled to one free copy of your credit report from each of these credit bureaus once per year.

Once you have obtained the copies of your credit report, you’ll need to peruse them to ensure that all the items listed are accurate and current. If you encounter any items that are inaccurate, incorrect or were not made by you, you’ll need to dispute these with the credit bureau.

Another important part of the credit equation is your credit score. However, you will not find your credit score on your report; you’ll need to pay extra for this. That said, knowing your credit score is one of the best ways to ensure that you are able to obtain the car loan that you need.

Down Payment: Of course, in order to obtain any auto loan, you’ll need a down payment. In most cases, lenders require at least 5% of the vehicle purchase price as a down payment. However, in some cases it can be as much as 10% or more of the total cost of the vehicle. Therefore, you’ll need to know how much you intend to spend on the new vehicle, so you can save up the appropriate down payment amount.

It is very important to put down as much as possible as a down payment. Because your down payment subtracts directly from the cost of the vehicle, you will finance less, the larger the down payment is. This means that your monthly payments will be lower and that you will also spend less in interest payments over the life of the loan.

Shop Around: Most people rarely look for lenders outside of the dealership. However while dealer financing is certainly convenient, it is not necessarily the most affordable type of financing available. If you shop around with various lenders, you will certainly find a better deal than what the dealership will give you. For instance, you can check with local banks, credit unions and even online lenders to find out what interest rate they will give you for an auto loan.

By shopping around, you ensure that you get the best deal possible, and you do not fall victim to unsavory lending practices. For instance, dealerships routinely tack on extra percentage points to auto loans financed through them. This provides the dealership with extra income but is certainly not a favor to customers.
When you shop around, you should compare several different factors of the lenders you visit. For instance, what is the APR offered on their auto loans for consumers in your income bracket? What is their reputation for customer service like? How willing are they to work with you should you encounter financial difficulties? Each of these questions must be answered prior to choosing a lender for your auto loan.