How to get the best auto loan rates
When it comes to buying a car, far too many Americans are likely to simply get a loan from a dealership. And that’s a really bad idea.
Really, it’s better if you don’t finance your car at all. Pay in cash will get you a better deal. And you’ll avoid paying interest on the financing.
That said, sometimes it is enough to finance at least part of the purchase of your car. You need a vehicle to get to work or transport your children. But you don’t have time to save to buy the vehicle in cash.
It is understandable and sometimes inevitable. But just because you have to finance your car doesn’t mean you have to go for everything the dealership has to offer. As with other types of financing, it’s a good idea to shop around for a car loan. Fortunately, the Internet makes this easier than ever!
Here we are going to tell you where to find the best auto loan rates. But before we jump into that, let’s talk about how to prepare yourself in advance for the best possible rates.
Prepare for success
Regardless of the type of financing, you can take steps in advance to make sure you get the best deal possible. Most consumers know this to be true when shopping for a mortgage. But they may not take the same time to prepare for auto loan success.
But even a few small changes can save you a lot of money on your auto loan. Do not believe me ? Here’s how the math shakes up for a single example, using our Simple loan payment calculator.
Let’s say you need $ 10,000 in financing. You plan to finance the vehicle over four years. One lender offers you a rate of 5.5%, and another offers you a rate of 7.5%.
On the 5.5% loan, your monthly payment will be $ 232.56. On the 7.5% loan, your payment will be $ 241.79.
It doesn’t sound like a lot. I mean, $ 9 a month won’t really break the bank. But over time, the difference becomes clearer. You will pay a total of $ 1,163 in interest on the first loan. A second loan, you will pay $ 1,606. Saving almost $ 500 is definitely worth taking the time to take the following steps! (I used this calculator to run these numbers.)
Related: 6 ways to pay too much for your car loan
So what can you do to lower your auto loan rate? Take these steps before buying a car:
1. Check and improve your credit
Before you start shopping for an auto loan, take the time to check your credit score. You can do this for free quite easily. If you have a credit card, your the credit card company may offer free credit scores. Or you can check out a site like Sesame Credit for a fairly accurate score estimate.
If your score is below the âexcellentâ range of 760+, you can improve. Maybe you don’t have time to take months to improve your score. But there’s a good chance you can take a few simple steps to boost your score in a month or two.
The most common ways to quickly increase your credit score include:
- Pay off revolving debts: Your credit score is largely based on your debt / credit ratio. It is the amount of debt you have compared to the credit you have. Paying off revolving debt can improve this ratio and increase your score quite quickly.
- Request credit limit increases: Another way to improve your debt ratio is to request an increase in the credit limit on an existing account. However, this can cause your credit report to drop sharply, which can temporarily lower your score. It is best to take this step a few months before shopping for an auto loan. And be strategic. Only ask for a limit increase if you have a good payment history and decent credit, which makes lenders more likely to say yes.
- Correct errors on your report: Many credit reports contain errors, which can lower your score. If your report shows accounts that do not belong to you, correct these errors as soon as possible.
- Request a goodwill adjustment: Late payments in your credit history can seriously affect your credit score. Fortunately, you can sometimes get these late payments cleared. This is especially true if you’ve generally made payments on time but have one or two abnormal late payments. Here’s how to increase your score with goodwill adjustments.
- Be on your best behavior: While you are in the process of obtaining a car loan, be on your best credit behavior. This means avoiding accumulating credit card balances, making payments on time, and not requesting any further new credit.
2. Save for a down payment
The amount of your down payment can make a big difference in your auto loan rate. So the more money you can put in, the better. If you can’t save much right now, do your best to save quickly.
You could take a second temporary job, sell things, or work overtime at work. Another option is to simply make your current vehicle last until you can save a significant down payment for your next car loan. Believe me, waiting a few more months will be worth it when you save a ton on your auto credit!
3. Shop around for your loan
Finally, we come to why we wrote this article in the first place. Once you’ve taken the first two steps, it’s time to get auto credit. And to get the absolute best rate, you will have to shop around for this loan.
This may mean checking your local credit unions and banks. Or you can use the tools we will describe below to consolidate your online shopping.
Either way, make sure you shop within two weeks. This will allow FICO and other credit scoring algorithms to count all your purchases in one a single hard pull on your credit report. So your score will take a temporary hit. But it will be smaller than if you dragged your credit applications over several weeks.
As you shop, experiment with different scenarios. For example, could you get better financing by putting an extra $ 500 for the down payment? Does it make sense to buy a newer, low mileage vehicle from a cheaper make and model? Looking at a few different scenarios will help you find the best financing possible.
Where to find the best auto loan rates
Shopping around for auto loan rates is easier than ever with the Internet. Loan aggregators like Monevo Make it easy to review potential rates from multiple lenders at once (more details below). Here is where you should look for the best auto loan rates:
1. Your local credit union
Credit unions are an often overlooked source of finance for auto and other loans. Credit unions are a particularly good option if you don’t have the best credit. Sometimes they’ll overlook a bad credit score in favor of other proof that you can manage your money well.
This is the good news. The bad news is that asking for a loan from a credit union may take a little longer. You may need to speak with someone on the phone or in person to get your loan offer. It’s not always the case. But it’s more likely.
However, it can work to your advantage if you want to take the time to explain your credit situation in more depth. A credit union loan officer often has more leeway to make favorable decisions based on a personal conversation, rather than just a list of personal details.
2. Your own bank
Buying credit from your own bank, especially if you already have a relationship, is always a good option. Banks, especially large ones, are more constrained in their lending decisions than credit unions. But they can still take your banking history into account when deciding on your loan offer. And that can be a good thing.
The Monevo is a good place to get a set of auto loan deals. By sharing some basic information – such as your name and job details – Monevo is able to transmit your information to a variety of lenders.
From there, you’ll have a list of auto lenders and loans that meet your buying needs. You can then compare the finer details of each.
To save even more time, you can filter your search by estimated credit score and loan amount. This ensures that you are only in contact with lenders who match what you are looking for.
All in all, Monevo will give you a clear idea of ââyour financing eligibility and the interest rate that is offered to you. Once you’ve found a lender that piques your interest, you can contact them directly to start the official application process.
Visit Monevo or read the full review
This site specifically searches for financing from dealers in your area. The application process is quick and easy, but it doesn’t give you an immediate response. Instead, you receive an email later with the potential lender’s information.
For me, CarsDirect has achieved some of the same results as LendingTree. But that could be an option for finding good dealer financing. (Which can, in fact, be the best deal sometimes!) Plus, you can also use it to search for vehicles in your area.
But what is a good rate?
While you are shopping, it can be helpful to have a special earmarking for auto loan rates. This way you know if you are getting a good deal or not. It’s a little harder to dig up average auto loan rates than it is to dig up average mortgage rates.
See the table below for competitive prices on auto purchases: