Financing a New Car: Auto Loan Tips for Lower Rates

If you are in the market for a new car auto loan, you have several ways of getting lower rates than if you simply agreed to the first package offered by a dealership. Typically, car buyers find that financial institutions such as banks and credit unions offer better rates, but you may be able to get an even better deal by asking the right questions and preparing in advance.


Preparation


Your credit score is an important factor in the type of loan you can receive. If your credit score is below par, plan on waiting a few months before applying for a new car auto loan. During this time, you can improve your credit score, dispute any mistakes that exist on your credit report, and save money for a larger down payment. Larger down payments typically reduce the interest rate of new car auto loans and reduce the amount of money that you have to pay interest on, saving you money on two fronts.


Before shopping for vehicles or getting auto loan quotes, examine your budget and calculate what kind of monthly payments you can really afford. This will help you when you need to ask the right questions about loan terms, adjustable interest rates, and down payment options.


At the Dealership


Whether or not you plan to use the dealership as your new car auto loan lender, you should negotiate the price you will pay for the vehicle before you ever begin to discuss financing. When you apply for an auto loan quote, you will need to know how much you are paying for the car and have your personal information ready.


Especially at car dealerships, never feel pressured to make an immediate decision. Even if you are sure of your decision of buying a particular car, plan to leave the dealership empty-handed after the first visit to give yourself time to analyze all of your options, especially if you have not yet obtained a quote from another institution. You are much more likely to make an informed decision if you take the time to weigh your options. However, if you discuss financing with a dealer, be sure to confirm in no uncertain terms that you have final approval of the loan. Otherwise, the terms may change when you return or after you purchase the vehicle.


Collecting Quotes


Dealerships sometimes advertise lower loan rates than what banks typically offer, but these tend to be introductory rates that skyrocket after the introductory period. When you begin discussing your auto loan with the dealership, make sure to ask whether and how the annual percentage rate (APR) will change over the term of the loan, especially, but not only, if you receive an introductory rate. If you can afford larger monthly payments, inquire about shorter term loans and larger down payments, since those not only come with lower rates, but also reduce the amount of money on which you pay interest. Also ask directly whether there are any additional costs for processing fees, transaction fees, or penalties.


Once you know which car you want, how much you will pay for it, and what the dealership can offer you in terms of financing, apply for quotes from banks and credit unions. You can do this in person, over the phone, or online. Just like dealerships, banks and credit unions can typically offer incentives that may save you money or that may disguise hidden costs. Always ensure that quotes are based on down payments and monthly payments you can afford, that the interest rate will not skyrocket after an introductory period and that you are offered loans of varied terms.


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