If you’re shopping for a car, you’re probably asking yourself one big money question: “Can I afford this car or not?” That’s where a car loan comes in: it makes purchasing a new or used car totally possible for people (i.e. almost everyone) who don’t have tens of thousands of dollars in cash lying around for a car purchase.
Since you’re investing so much time in the car shopping process, you should be investing just as much time in the car loan shopping as well - after all, you’ll be stuck with both the car and the payment!
If you’re looking for a car loan, here are some tips for getting the best rate:
Know your credit history. Take a moment to look up your credit report and your credit score before you start the car loan shopping process. Your credit will determine what car loan rates you will qualify for - and ultimately, what type of car you can afford. Get a good idea first of what you’ll potentially qualify for before you shop for a car loan.
Don’t go loan shopping at the car dealership. Before you even set foot in the dealership to go car shopping, it’s smart to begin the loan application process first. Start by talking to your bank or credit-union or even your car insurance company. You’ll likely be able to get a prequalification for a loan before heading to the car lot, which means you can go to the car dealer with money in your pocket. You can use this to your advantage to negotiate a better car financing deal with the dealership.
Keep your application process short. Because a part of your credit score is impacted by new credit inquiries, shopping around too long for too many loans means a small dip in your credit score. Keep your applications within a two-week period to help minimize the impact on your credit history.
Pay attention to the total amount, not just the monthly payment. Lenders like to focus on the monthly payment when they talk about loan terms, but make sure that you pay attention to the interest rates and long-term loan payment schedule. A lower monthly payment likely means an increase in the total loan repayment.