Buying a car is expensive, which is why most car buyers choose to take out an auto loan to finance the purchase. In fact, statistics show that 81% of new vehicles purchased in the United States in the first quarter of 2021 were financed. But whether or not you get a car loan, you need to get the best deal. You must shop around to identify a lender with the best terms. If you’re buying a car with a loan, here are some tips to help you get the best rates.
1. Improve your credit score
Before you apply for an auto loan, you need to improve your credit score. Your credit score is a key determinant of your auto loan rate. The higher your credit score, the lower the interest rate you will pay. According to Experian, the average credit score in the United States was 711 in 2020. The minimum credit score will depend on the lender, however, a good score is between 600 and over 700. You can consult the credit bureaus or your bank to check your score. If the rating is too low, take the time to improve it before applying for auto credit.
2. Do your research
A useful rule of thumb is not to take the first car loan offered to you. Take the time to educate yourself before deciding on the car loan to obtain. Fortunately, most auto retailers provide all the auto loan information and calculators on their websites to help you make a decision. Before choosing a lender, check the interest rate, repayment terms, down payment required and any penalties.
3. Purchase the full amount of the loan
When shopping for an auto loan, you should look at the total amount of the loan instead of the monthly payment. Some lenders will try to convince you to get a loan by offering you lower monthly payments. Although their offer may seem attractive, you may end up paying more interest. Look at the total loan amount so you know how much you will ultimately pay.
4. Compare loan quotes
After you’ve done your research and gotten different quotes, take the time to compare them. Compare terms and conditions and check monthly payments and total loan amount. When comparing quotes, keep in mind that the longer the repayment period, the more interest you will pay over time.
You can also contact your bank and inquire about loan prequalification. This will help you know how much money you can get. Once you get a car loan prequalification, most lenders will be willing to offer you an affordable loan. You have the upper hand when negotiating with lenders.
5. Read the fine print
Outstanding auto loan balances in the United States are affected $1.29 trillion in the third quarter of 2021. Some car buyers do not repay their car loans because they do not read the loan agreement carefully. Before signing the loan agreement, make sure you fully understand the terms, potential penalties and mandatory clauses. That way, you’ll avoid defaulting, being penalized, or getting into legal trouble.