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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 providing you with financial calculators and interactive tools, publishing original and objective content, by enabling users to conduct research and compare information for free and help you make sound financial decisions. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that appear on this website are provided by companies who pay us. This compensation could affect how and when products are featured on the site, such as for instance, the order in which they be listed within the categories of listing, except where prohibited by law for our loan products, such as mortgages and home equity, and other home lending products. However, this compensation will affect the content we publish or the reviews appear on this website. We do not include the vast array of companies or financial deals that may be available to you.
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6 min read published September 30 2022
Written by Allison Martin Written by
Allison Martin’s work began over 10 years ago as a digital media strategist. Since then, she’s been published in numerous prestigious financial media 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 since late 2022. He is a fan of transparent reporting that allows readers to successfully find deals and make the most appropriate choices regarding their finances. He specializes in small business and auto loans.
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The process of buying a car for the first time is likely 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 can fall to the wayside. Don’t let it. Finding a car requires a lot of research- but the more you do now and the more efficient your finances will be later. An interest-free rate can be the only way to a car that is affordable, regardless of what you end up buying. 1. Be truthful about your budget. The main concern when buying a car should be the price. Consider how much you’ll be paying each month as well as the total interest that you will pay to . But you should also consider the expected maintenance of the vehicle, fuel and insurance all factor into how much you’ll spend. Experts recommend spending no greater than 10% of earnings on a car. Utilize an estimate tool to calculate the monthly installments and total interest paid. Check out resources such as Edmunds or Kelley Blue Book to see what you could expect to be able to pay for the vehicle you’re considering buying. Key takeaway
Examine your financial situation to ensure that you’re not spreading your budget too thin.
2. Keep in mind that longer terms are more expensive car is rising. It’s not hard to locate an loan that lasts six or 7 years but they have a major downside. A longer loan period does result in a lower monthly payment — which could be helpful when you’re trying to stay within your budget- but it results in higher interest rates overall. Even if you purchase an inexpensive vehicle, you can quickly become in debt, or pay more than it’s worth. For the first time you take out a car loan pick the most short-term term you can reasonably afford each month. It could mean you need cut back on some other ways, however it’s by far the most secure option to avoid being liable for more on your vehicle than what it’s worth. It is the most important lesson to take away
It’s likely that you’ll save money in interest with a shorter loan time frame, and you can minimize the risk of getting upside down on your car loan.
3. Review your credit report and score. Your credit score will be the primary aspect that lenders look at when determining your interest rate. To get a good rate, you’ll need good credit. Also, you’ll require a track record of timely payments. If you haven’t been able to establish your credit score and history, you’ll have a harder getting a bargain. There may be a need to apply — which means a higher interest rate. If you’re able to put off paying for your vehicle loan make sure you create a record of punctual payments. A low ratio of debt to income indicates to lenders that you are able to manage your finances. Make a strong financial case so that your lenders can score a good deal. Take away
Improve your credit score prior to applying for a competitive interest rate for your auto loan.
4. Shop with more than one lender Comparing lenders is the same as comparing car prices if you want a good deal. There are a variety of lending options to choose from. include: : If you’ve got a low or zero credit, then you might be eligible for a first-time car buyer program offered by local credit unions. You’ll have to be an active member of the credit union in order to qualify for loans, so inquire about the best ways to join before proceeding. Large banks: Customers with an established relationship with a traditional bank might qualify in the auto loan. If you are a first-time purchaser you could be charged higher rates. Internet lenders typically provide less stringent eligibility requirements than traditional banks. This is good news if you lack credit history or have a high score, but you can expect a higher interest rate to cover any risk posed for the lender. Marketplace lenders: These online platforms feature an extensive network of lenders. The application you submit is shared with the network so you are able to view possible loan offers from lenders that could be a good match. The lenders you can use as captives: could also secure financing through a or the finance company that is part of the auto manufacturer. They typically offer auto loan programs for currently enrolled students and recent college graduates. Each lender offers different rates and methods of calculating who gets which terms. It is crucial to shop around and make an application with a variety of lenders. This allows you to see the loan you are eligible for, how much you are able to spend, and how much you will be expected to pay each month. The most important thing to remember is
Doing some research will help ensure that your get the most competitive deal on a car loan.
5. Preapproval is a must. an added benefit that is it could end up with a period of up to 30 days. When you ask for preapproval the lender will issue an informal inquiry that doesn’t impact the credit rating of yours. You’ll have time for a visit to dealers as well as test drive cars without the pressure of having to obtain financing. Getting preapproved gives you the advantage in negotiations. Dealer financing is usually costly because dealers mark up their rates to earn profits. If you visit the dealership with a preapproval document that you have signed, you could be in a position to negotiate a great deal on in-house financing — if that is your preferred route to take. Some dealers also offer the choice between or low-interest financing. If you’ve been able to get unbeatable rates with another lender the choice is easy: reward yourself with a discount. What’s the most important takeaway
Getting preapproved helps narrow the pool of lenders and minimizes the impact to your credit scores.
6. Make a decision between used, new or leased Lenders provide different rates on auto loans for . Lessors use their own method of calculating the monthly payment known as the factor rate and it is important to do your research on before you take this step. If you’re planning on purchasing, know that new cars generally offer lower rates across all levels. However, brand new vehicles are also more expensive and be less valuable due to depreciation. So, while you may have to pay higher interest rates for a used car, you may still save cash. Key takeaway
New cars generally come with more competitive loan conditions than used vehicles however, your total cost will be higher.
7. Look for specials from the manufacturer. Most manufacturers offer first-time car buyer programs. Some offer discounts for college students and recent graduates. If you’re thinking of purchasing a car for the first time or have the money and credit to back you up and want in-house financing it is sensible to see if you can get a little money off. Manufacturers also offer rebates, and leases with special terms on new models. Keep an eye out for these. You’ll be limited in the items you can purchase and the amount you can pay for it. But if you already have a clear picture of what you’d like and excellent credit, manufacturer specials can help you save money on your first auto loan. Key takeaway
Check with the dealer to see whether you are eligible for financing incentives if you’re purchasing a new ride.
8. Make use of a co-signer or co-borrower If you don’t have great credit, you might have a chance of getting a good deal. The lender will look at the credit score of both parties when deciding whether to finance your car. A to the vehicle but will be liable for the loan in the event that you are unable to pay on time. However, a co-borrower shares ownership of the car and shares the responsibility for your loan along with your. Regardless of which you select the person to co-borrow with, they should have good or excellent credit and an ongoing source of reliable income that meets the lender’s minimum threshold for approval. Key takeaway
Co-signers or co-borrowers can increase your chances of approval and allow you to get an even better rate on an auto loan.
9. Make a large down payment Once you know what you can afford to spend, start that’s at least 20 percent of your total cost. If you can’t afford this amount, try to make a down payment of at least 10%- or whatever you can afford. Consider using Bankrate’s to find the right amount for you. It’s tempting to buy an expensive car, but first-time car buyers — and every car buyer need to make a downpayment to lower the amount they have to finance. A bigger down payment can increase the chances of getting a favorable interest rate, and also lowers your monthly payment and shrinks the amount of interest you’ll be paying over the loan’s course. The most important thing to remember is
A larger down payment could allow you to qualify to get more favorable loan terms, and your monthly payment will be less expensive.
Next steps The most important thing to do to finding a fair rate on your first auto loan is to stay patient and shop around. You can get an affordable rate by comparing lenders, making on a down payment and improving your credit score. Find out more
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Written by
Allison Martin’s work began over 10 years prior to that as a digital content strategist. She’s been published in several leading 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 is a fan of the clarity of his reporting, which helps readers successfully get deals and make best decisions for their financials. He is a specialist in small business and auto loans.
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