Secrets to Getting the Best Car Loan Rates

Finding a car that fits your needs best is just the first step. Now that you have it in your sights, it’s time to think about financing. We’re going to assume that you’re not going to be able to pay in cash, so you’re definitely going to need a car loan. But just like buying a car, there are some important things to consider before signing the dotted line. Read on to find out the secrets to getting the best car loan rates, which will save you hundreds or even thousands of dollars!

Buy a New Car

When talking about financing, you will find that sometimes it’s a better idea to consider picking out a new vehicle instead of going to the used car lot. Although a new car’s price tag is usually higher compared to buying used, you will also save a lot of money on lower interest rates.

The best rates are usually reserved by car dealers for the brand-new models, and when shopping around, you might even find interest-free offers for new cars. A lot of car buyers discover that the money they save on the interest – when computed over the life of the car loan – will be more than worth the initial savings they were after when looking for a used car.

Do Your Research

You’ve put a lot of effort looking for the best car available. You should also put in the same effort into getting the best car loan rates. There are financing companies, credit unions, and banks that a car buyer can go to secure a loan. You can even find lenders on the internet that would be willing to help you out. Don’t hesitate to pay them a visit and talk about what you need, and what you can afford. Find the best offer you can get, make sure you have it in writing, and then try to shop around and see if anyone else can match or beat that offer.

As a matter of fact, we highly recommend getting a pre-approved loan from a credit union or bank before you talk to the car dealer. It will show how much you will be able to borrow when buying the car, and will give you a lot of leverage when negotiating with the dealer. At the very least, you will be able to avoid last-minute surprises with the financing because you already know how much you can borrow.

Take Care of Your Credit Score

Take note: the financing companies you will be paying a visit to will be looking at your credit score in order to assess your capacity to pay back the car loan. They will be giving you that loan (or not) based on a variety of different factors, and these factors won’t always be the same for all lenders, so you should expect to get different offers.

We’ve mentioned your credit score beforehand, and this is a very critical part that you really shouldn’t neglect. To put it simply, your credit score will greatly influence the willingness of banks and other financial institutions to lend you money. A poor credit score means you will find it difficult to secure any kind of loan from a financing company, and if you do manage to get one, you can be sure it will be loaded with hefty interest rates, because you’re considered as a high-risk borrower.

So what can you do to boost your credit score? Pay your bills completely, and pay them on time. Take note: the biggest impact on your credit score will be missing payments on your credit cards, loans, and mortgages. Even just one missed payment will be significant. And also bear in mind that if you have a lot of outstanding debt, it will still negatively affect your credit score even if you do manage to pay your bills on time.

However, most people think that if they don’t use their credit cards, their credit scores will rise or remain in the top rankings. This is not true. Credit utilization is a very significant factor that is looked at by financing companies when computing your score. This means that you should have a track record of using your credit – and then making those payments on time – to build up your credit score.

A low credit utilization of around 30% is recommended, but remember that totally neglecting to use your available credit will also scare off lenders, because there are instances when a credit card holder will suddenly decide to use up all his available credit in a huge shopping spree and then be unable (or unwilling) to shoulder the payments.

Know the Numbers

Aside from managing his credit score, a car buyer worth his salt should be aware of what a good offer looks like. When shopping around for a car loan, we recommend doing it within the span of two weeks (14 days). Be aware that every time you talk to a credit union, a bank, or a lender, your credit record will be pulled so they can take a look at it and determine how much they can offer you. Each pull will drop your score by a few points, but if you get this done within 14 days, they will all be recorded as a single pull, minimizing the points dropped.

So how much is a good offer? The rates for a car loan will vary, depending on a number of factors which we have described above. But all things considered, a car loan with a 4.5% APR (annual percentage rate) or lower is generally regarded as a good quote. Those with a credit score ranging from 720 to 800 (and higher) can expect to get around 3.30% APR, while those with credit scores of 690 to 719 will usually be offered loans with around 4.60% APR. These are average numbers and will differ from company to company.

Lastly, you should consider getting a loan payable by 36 months, rather than a 48-month or even 60-month loan. Securing a shorter-term loan will save you hundreds of dollars on interest, but of course, you will still have to shell out higher monthly payments, so as we suggest, consider this option only if you are confident of your capacity to make those payments.