How to get the best auto loan rate



Negotiating a good price on a new car is only half the battle; you also need a good car loan to make it a good deal. To find the best auto loan rate, you’ll need to compare rates, terms, and fees with at least three lenders, pre-qualifying if possible. Loans vary by lender, borrower’s credit, and regional factors, so shopping around is the best tool you have.

Things to do before applying for a car loan

It’s rarely a good idea to apply for the first auto loan you see. To make sure you get the best deal possible, take a few steps ahead to improve your finances.

1. Check and improve your credit score

The first step in this process is to familiarize yourself with your own credit history. Your credit score is one of the main factors that determine your auto loan rate: the higher your credit score, the lower your rate.

There are many options online that allow you to check your credit score; your bank may even send you a free update every month. If you want a more detailed view of your credit health, you can also access your credit reports from each of the credit bureaus (TransUnion, Experian and Equifax) once a week at

Minimum credit scores vary by lender, but you will typically need a mid-600 score to qualify and a score above 700 for the best rates. If your credit score needs work, take the time to improve it before applying for your loan by paying off existing debt, making timely credit card payments, and avoiding further credit applications.

Key to take away

Improving your credit score can drastically lower your auto loan rate.

2. Do your research

Online research is essential in deciding which auto loan is best for you. An online auto finance calculator can help you determine what type of financing is best for you, and reviews of auto lenders can help you narrow down your list of potential businesses.

Some things to pay special attention to when looking for loans are interest rates, repayment terms, down payment required, and any penalties that come with the loan. You can also search for lenders on the Better Business Bureau to make sure the options you are considering are trustworthy.

Key to take away

Investigate lenders’ options, terms, and potential client reviews to make sure they are trustworthy.

3. Limit your purchases to a period of two weeks

Each time you apply for a loan, your credit rating drops slightly, making it more difficult to get a prime rate loan. It is important to limit your loan search to a two week period so that your requests only count as one request.

Key to take away

Limiting your purchase period reduces any negative impact on your credit score.

4. Buy the full loan amount, not the monthly payment

The only time you should consider the monthly car payment is when you are privately calculating how much you want to spend on your car. After that, don’t discuss the monthly payments.

Some lenders may focus on payments to get you to borrow more money – by announcing a lower monthly payment by extending the number of months you pay. This way, they generate more interest and you have to drive your aging car for longer. Instead, stand firm on how much you actually need to borrow based on the car you’re buying and work out the repayment terms from there.

Key to take away

Shop around depending on how much you want to borrow – you can change your repayment term and monthly payments later.

5. Compare auto loan quotes

Once you’ve done your research and have a few options out there, it’s time to shop around. The best way to do this is to get quotes from a few companies, as the lowest APRs advertised on their websites won’t necessarily be the APRs you receive. By getting quotes, you can compare your actual offers side by side.

When you receive your quotes, pay special attention to both the APR and the repayment term. Even though a long term loan has a lower monthly payment, you will pay more interest over time.

Key to take away

Get quotes from at least three lenders to compare interest rates and terms.

6. Read the fine print

After getting loan quotes, take the time to go through the fine print. This is a binding agreement that will follow you for years to come, so you need to know exactly what you are committing to. Some areas that need special attention are binding binding arbitration and prepayment penalties. Binding arbitration takes away your right to go to court with the lender if there is a problem, and prepayment penalties are fees charged if you prepay the loan.

Key to take away

The fine print contains details of the fees and restrictions that could increase the overall cost of your loan.

Frequently Asked Questions About Auto Loans

What is conditional funding?

Conditional funding is a statement from your lender listing the conditions you must meet to receive your loan funds. If the financing is “conditional” or “conditional,” the lender can change your agreement later, leaving you on less favorable terms. Never take a car from a dealership until the financing (down payment amount, interest rate, loan term and monthly payments) is finalized.

What is a good auto loan rate?

A good auto loan rate is generally any rate below the average for your credit profile. For drivers with good credit, the lowest rates can be between 2.5% and 4%, while drivers with poor credit may see rates closer to 10 or 11%. This is why it is so important to shop; in doing so, you can choose from the rates offered for your individual situation. Generally speaking, a good loan is a loan with low fees and repayment terms that work for you.

How to get pre-approved for an auto loan?

You can usually get pre-approved for a car loan online. The lender will perform a soft credit check and ask for basic financial details including your social security number, employment status, ID card, and income. In many cases, you will receive a decision from the lender within minutes.

Should you consider saving for a down payment?

It’s usually best to save for a down payment when applying for a car loan. The two main benefits of saving for a down payment are getting a lower monthly payment and qualifying for better rates overall. Edmunds recommends aiming for a 20% down payment, but the average down payment is closer to 11.7%.

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