Buying a car is both exciting and frustrating. Not only do you have to pick a vehicle, but you also have to figure out how you’re going to pay for it. And unless you plan to fork over a bunch of cash, you’ll need to get the vehicle financed with a car loan. Do you know how to get the best possible car loan?
4 Smart Financing Tips
With the current state of financing, almost anyone can qualify for a car loan. But just because you can qualify, doesn’t mean you should accept the offer and buy the vehicle. Not all car loans are created equal. (Far from it, in fact.) If you want to be smart about your purchase, educate yourself on the ins and outs of auto financing so that you can find and secure the best possible car loan for your needs.
Here are a few helpful suggestions:
- Fix Your Credit Score
Like any other type of loan, your interest rates and terms will be influenced by a variety of personal factors. One of the most important factors is your credit score. So it makes sense that you’d pay close attention to your score before starting the car buying process.
Unlike with a mortgage, where you have to meet strict standards to get a loan, car loans are often handed out like candy – even if you have terrible credit. As a result, you can easily end up overpaying in interest.
By reviewing and fixing your credit score in advance, you can secure the lowest rates – potentially saving you thousands of dollars over the life of your loan. (Here are some helpful tips on how to fix your credit score fast.)
- Put More Down
One of the surefire ways to get the best possible car loan is to put more money down. (Naturally, the more of your own money that you provide, the less you have to borrow.) This not only lowers your payment, but may also bring down the amount of interest you pay.
- Shop Around
A car loan is like almost any other purchase in that you can buy one from more than one place. So rather than accepting the first loan offer you’re given from a local bank, shop around for the lowest rates.
With three or four different loan offers in hand, you can select the one that has the best interest rate, as well as the most advantageous repayment terms. (Be sure to look for loans that have an early payout option, which means you’re free to pay off the balance prior to the end of the loan.)
- Avoid Dealer Financing
If you’ve ever walked onto a used car lot or into a dealership, you’ve probably been offered something called “dealer financing.” This is basically when the company that you buy the car from allows you to finance that purchase with them (as an alternative to paying in cash or securing outside financing).
Dealer financing can work in a couple of different ways. Larger dealerships might actually loan you the money directly. Smaller dealers might work with a local bank or credit union and help obtain a loan for you (securing some compensation as the middle man). But in either case, it’s never a good deal for you.
When you’re borrowing money to buy a car, you’re really making two purchases. You’re buying the car plus the loan. And with dealer financing, you lose a ton of leverage.
“When you roll both of these products into one at the dealership, it’s easier to miss important details,” Fool.com mentions. “If you start by shopping for an auto loan ahead of time, you have one less thing to negotiate when you get to the car lot. When you arrive with financing in hand, both you and the dealer can focus on the car, which is the real product that you came for.”
On top of that, dealer financing usually comes with higher rates and less desirable terms. For these reasons, you’re better off pursuing outside financing.
Put Your Money to Work
With the right car loan, you can get the car you want at a price that’s easy on your budget. Just make sure you do your due diligence up front so that you avoid the negative repercussions that come from getting saddled with high-interest payments that stifle your finances and leave you with regret.