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9 tips to get a good deal on your first auto loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by offering you interactive tools and financial calculators as well as publishing objective and original content, by enabling you to conduct research and compare information for free to help you make financial decisions with confidence. Bankrate has agreements with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this website are provided by companies who pay us. This compensation could affect how and when products are featured on this site, including such things as the order in which they may be listed within the categories of listing, except where prohibited by law. Our loans, mortgage,, and other products that lend money to homeowners. However, this compensation will have no impact on the content we publish or the reviews you read on this site. We do not contain the entire universe of businesses or financial offerings that could be open to you.
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6 minutes read. Published September 30, 2022
Written by Allison Martin Written by
Allison Martin’s career began more than 10 years prior to that as a digital content strategist, and she’s since been published in numerous prestigious financial media outlets such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.
Edited by Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate since the end of 2022. He values clear reporting that helps readers successfully find deals and make the best choices for their finances. He specializes in small business and auto loans.
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Making plans to purchase a vehicle for the first time could be one of the most stressful situations that you can go through. With so many things to consider about the actual car to consider, the loan may fall by the wayside. Don’t let it. Finding a car requires a lot of researchand the more you can do now and the more efficient your finances will be later. Low interest rates are the key to a low-cost car regardless of the car you decide to purchase. 1. Be upfront about your budget. The most important factor when buying a car should be the price. Weigh how much you will pay each month and the overall interest paid to . You should also think about the — expected maintenance of the vehicle, fuel and insurance all are a factor in how much you spend. Experts advise not spending more than 10% of your income on a car. Use an to estimate monthly payments and total interest paid. Check out resources such as Edmunds and Kelley Blue Book to see what you could expect to be able to pay for the vehicle you’re interested in purchasing. What you should take away from this is
Assess your financial situation to determine without stretching your budget to the limit.
2. Remember that longer terms mean more expensive car is rising. It’s not difficult to locate a loan that lasts for six or seven years, but they come with a big downside. A longer loan duration does mean that you pay less monthly- which could be helpful when you’re on a tight budget -however it will result in greater interest being paid in total. If you decide to purchase an inexpensive car it is possible to quickly be debt-ridden or owe more than what it’s worth. For that first car loan pick the shortest period you can afford every month. This could mean that you need cut back on other areas, but it is certainly the most secure choice to protect yourself from having to pay more for your car than it’s worth. Key takeaway
You’ll likely save a bundle on interest rates by choosing a short loan time frame and reduce the chance of becoming upside down on the car loan.
3. Review your credit report and score. credit score is the main element that lenders take into account in determining your interest rate. To get a good deal, you will need an excellent credit score. Additionally, you will require a track record of timely payments. If you haven’t had the chance to build your credit score and track record, you’ll have a harder to find a great deal. It could be necessary to pay the car loan, which will mean more interest. If you’re able to put off paying on your car loan make sure you build a history of on-time payments. A lower ratio of debt to income lets lenders know that you’re able to handle your finances. Paint a good financial picture so that your lenders can score an attractive deal. Take away
Work on improving your credit score prior to applying to get an interest rate that is competitive in your auto loan.
4. Shop for more than one lender Ccomparing lenders is just as important as comparing cars to get a fair deal. Lender types to choose among include: : If you have very little or zero credit, then you may be eligible for a first-time car buyer’s loan through a local credit union. You’ll need to be a credit union member in order to qualify for loans and other financial services, so ask about ways to join before proceeding. Big banks: Consumers with an established relationship with a traditional bank might qualify for an auto loan. As a first-time car buyer it is possible to pay more expensive rates. Online lenders: Online lenders generally provide less stringent criteria for eligibility than traditional banks. This is good news in the event that you don’t have a credit history or have a high score, but you can anticipate a higher interest rate to cover your risk of default posed for the lender. Marketplace lenders: These platforms feature an extensive network of lenders. The application you submit is shared with the network , so you can see potential loan deals with lenders that might be a good match. Capitalist lenders can get financing through , or the finance company of the auto maker. They usually offer auto loan programs for current students as well as recent graduates of college. Each lender has different rates and methods to determine who will get the best terms. It is crucial to shop around and make an application with a variety of lenders. This lets you see what you qualify for, what you are able to spend, and how much you’ll be paying every month. It is a key takeaway
Shopping around can help you get the best deal on an auto loan.
5. Preapproval is a must. an added benefit that it will likely end in a period that can last for up to 30 days. When you ask for preapproval the lender creates an informal inquiry that doesn’t impact the credit rating of yours. It gives you time for a visit to dealers as well as test automobiles without the stress of securing financing. Being preapproved gives you an advantage in negotiations. Dealer financing can be costly because dealers increase their rates to earn profits. However, if you go to the lot with a preapproval letter and a preapproval letter, you might be capable of negotiating a favorable deal on in-house financing -, if that’s the way you’d like to take. Certain dealers offer the option of either low-interest or financing. If you have already been able to get an unbeatable rate with another lender the choice is easy: reward yourself with a discount. Key takeaway
Being preapproved can help narrow the pool of lenders and minimizes the effect on your credit score.
6. Choose between used, new or lease Lenders offer different rates on automotive loans for . Lessors have their own way of calculating the monthly payments known as the factor rate and you should study the factors prior to taking this decision. If you’re planning on purchasing, know that new cars typically come with lower rates across the all levels. However, brand new vehicles are also more expensive and will decrease in value more quickly due to depreciation. So, while you may be paying more on used cars, you may still save cash. The most important thing to remember
New cars generally come with more competitive loan terms than used cars, but your total costs will be greater.
7. Check out manufacturer specials Most companies offer first-time buyers programs. Some even offer special deals for students in college and recent grads. If you’re planning on buying a new car with a good income and credit to back you up and want in-house financing it is sensible to see if you can make a profit. Manufacturers also offer rebates, and special leases on new models. Be on the lookout for these. You’ll be limited to what you can buy and how you can afford it. If you have a clear idea of what you want and have excellent credit, the manufacturer offers can save you money on your first auto loan. What you should take away from this is
Check with the dealer to see if you qualify for incentives on financing if you’re buying a brand new vehicle.
8. Utilize a co-signer, or co-borrower. If you don’t have great credit, a could of getting a bargain. The lender will take into consideration both scores of your credit in deciding whether or not to finance your car. The vehicle will be liable for the loan if you cannot make timely payments. But, a co-borrower shares ownership of the vehicle and shares the responsibility to the loan with you. Whatever you choose to do the person to co-borrow with, they should be able to demonstrate excellent credit and consistent source of income that is in line with the lender’s minimum threshold for approval. Key takeaway
A co-signer or co-borrower could improve your odds of approval and allow you to get a better deal on a car loan.
9. Make a large down payment. Once you’ve figured out the amount you’ll need to start, make sure it’s at least 20% of vehicle’s total cost. If you’re unable to afford this amount, you should aim for a down payment of at least 10%or whatever you can be able to. Use Bankrate’s calculator to determine an amount that is suitable for you. It may be tempting to get a more expensive car, but first-time car buyers — and all car buyer should use a down payment to reduce the amount they need to finance. A larger down payment improves the chances of getting a favorable interest rate, and also lowers the amount you pay each month and reduces the amount of interest you’ll be paying over the loan’s course. The most important thing to remember is
A higher down payment may allow you to qualify to get better loan conditions, and your monthly payment will be more affordable.
Next steps The most important thing to do to getting a good deal on your first auto loan is to stay in the game and compare. You can walk away with the best rate when you compare lenders, making a down payment, and working on building your credit. Learn more
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Written by
Allison Martin’s work started over 10 years prior to that as a digital content strategist. Since then, she’s been featured in a variety of top financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.
Editor: Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate from late 2022. He believes in transparent reporting that allows readers to confidently find deals and make the best decisions for their financials. He is a specialist in small and auto loans.
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