If you are shopping for a new car, more than likely you will take out an auto loan. Such loans are common to 90 percent of new car buyers, individuals that do not have enough cash on hand to afford a purchase. Auto loan rates vary and can cost you hundreds of extra dollars if you jump in without thinking. Employ several money saving strategies when shopping for an auto loan.
Shop for a Loan
Loan rates vary and one lender may offer a half-percent lower than the next. You won’t know this unless you compare offers from at least three lenders. Better yet, consider five or six lenders including your own bank or credit union.
Know that loan rates change based on the length of the loan. For instance, a 48-month auto loan will typically have a lower rate than a 60-month loan. At 72 months, your rate will be higher. Go with the shortest term loan you can manage.
Put More Money Down
Lenders want borrowers to have skin in the game. Although it is possible to swing a “no money down” loan, you will pay for it with a higher interest rate.
When you have money to put down, including much more than the customary five to 20 percent down, then you can ask for a lower interest rate. If you do not get it from one lender, then go on to the next.
Fix Your Credit
Know that advertised auto loan rates are for customers with excellent credit. That means you need to have a credit score of at least 720 to 750 to get the best rate. Lower credit scores mean a higher interest rate.
If your credit is low, especially if it is in subprime territory, then your interest rate will reflect your bad credit. At this point, you night want to put off applying for a loan until your credit improves. Pay your bills on time, clean up your credit reports and avoid opening up new accounts until after you receive your auto loan.
Rebate Versus Loan Rate
So, should you take the generous rebate or should you go with the low-rate dealer financing? That’s both a question and a dilemma customers face and often do not know how to resolve. You can figure out what option is best for you by inputting your information on the Bankrate.com finance calculator.
The best deal for you may be to go with your own financing company and keep the rebate. That rebate or cash back offer can be used toward your down payment, supplementing the contribution you planned to make. For instance, if you planned to put $3,000 down and the rebate is for $2,000, then you only need to finance $20,000 for your $25,000 new car purchase.
Avoid the Extras
When you are preparing to sign your auto loan contract, pay special attention to the fees charged. Everything should be put in writing and fees should not be added after the fact.
Some of the fees you can expect to pay are destination, property tax and your state sales tax. What you may also discover are special dealer prep, department of motor vehicle license delivery and undercoating charges. Such “junk” fees should be eliminated before you sign your sales purchase agreement.
Related Reading — What Your Dealer Won’t Tell You About Car Financing