Getting a new car is exciting, and several automakers are offering very enticing car deals right now. But how will you pay for it? If you’re like most people, you’ll need to get financing. To get the best auto loan rate, follow these steps.
Your credit score is the ultimate deciding factor in determining how much you can qualify to borrow. Lenders will offer their best rate based on your score.
You can request one free copy of your credit report every 12 months from either Equifax, Experian or TransUnion. Your bank or other online institutions may offer free credit scores as well.
Once you have your credit report, review it carefully to ensure all the information is correct. If you see anything you don’t recognize, it could be fraudulent activity. You’ll want to address this immediately and get it resolved before you apply for an auto loan. Lenders can deny you a loan or offer you an interest rate that is out of this world.
TIP: If you aren’t happy with your current credit score, consider holding off on buying a new car for another six months or so while you work on raising your score. Paying debts off and lowering your debt-to-credit ratio can help boost your score.
Review your monthly income and expenses to know how much car you can afford. You don’t want to get your hopes up on a certain car only to find out it’s way out of your budget.
When buying a car, remember to budget for the expenses beyond the car purchase price. This includes, any down payment, sales tax and title/registration fees.
With an idea of how much you can spend on a new car, you can start looking at the type of car to buy. Write a list of your must-haves and nice-to-haves in a new car, and think about your driving habits. Do you commute long distances everyday? Are you planning to go off-roading or do you need to pull a boat or heavy trailer?
If you have a specific type of car in mind, it’s a good idea to call your current auto insurer and see how it would affect your premium. Buying a new car is the perfect time to compare auto insurance and see if you find a lower rate.
Auto loans are available from a variety of sources.
The easiest place to start is your current bank or credit union. Being a customer could earn you a preferred customer rate or unique loan terms or options.
To compare rates online, head over to a site like Nerdwallet or Bankrate.
After narrowing down your auto loan options to a couple of lenders, apply and compare your offers.
Be sure to know whether the lender is offering you a pre-qualification or pre-approval. A pre-qualification is just an estimate of the type of rate you could receive. It’s different from a pre-approval in that it only requires a “soft pull” on your credit, which won’t affect your credit score.
Getting pre-approved for a loan means the lender has officially approved a loan for a set amount at a given rate. You’ll have a bit more security at the dealership if you walk in with a pre-approved loan in hand.
Applying for an auto loan pre-approval should be done within 14 days of the actual purchase to reduce the impact it might have on your credit score. A pre-approval requires a “hard pull” on your credit, which means you’ll be asked for more personal information including your social security number.
Now we’re getting to the fun part - car shopping! It’s exciting to walk into a dealership and imagine yourself in one of their new car models.
Once you’ve picked out your dream car, it’s time to see what the dealer can offer you in terms of an auto loan. With a pre-approval or pre-qualification in hand, see if your dealer can’t make you a better deal. Be sure to review and compare all the terms from every offer, including:
With all financing offers in front of you, choose the best deal and finalize the paperwork with the appropriate institution. Be sure to contact your auto insurance company and notify them of your new car.
Congratulations, you just made it through the car buying process! It’s time to drive off in your new ride and feel confident you have the best auto loan!
Will interest rates go up in 2022? Mortgage rates have risen since the beginning of 2022, but they are still close to the historical lows.Learn more