Obtaining the best auto finance rate, or auto loan rate, can save you a lot of money. Having good credit is always required for getting a good interest these days, but it’s not the only factor that determines your finance rate. The auto finance rate you get is determined by your credit score, the type of lender, the type of car you wish to purchase, the length of the loan, and the current market situation.
Check Your Credit Score and Your Finances
Before you start looking at financing options, you should make sure your finances are in order. Check your credit score ahead of time and see what you can do to improve it. The best interest rates usually go to people with FICO scores of 760 or above. If your score is below 760 (and especially if it’s below 700), you may not get the auto loan rate you want. Here are some tips on how you can raise your score and maintain it:
- Make sure all of your payments are up to date, and keep paying on time. This will help you in the long run.
- Carry a low balance on your credit cards. A high credit balance will negatively impact your score.
- Refrain from opening several new accounts to increase your credit limit, or closing old ones. These will negatively impact your score because they will reduce your average account age, which is a small contribution to your credit score. Applying for new accounts will also add a credit inquiry, which can knock a few points off your score.
- Check your credit report. Sometimes, errors can appear on your credit report and won’t be fixed unless someone notices them. If you find an error on your credit report, contact the credit bureau and reporting agency.
Think about what you can realistically afford as well. Putting down a smaller down payment at first will translate into a larger loan, and can have you owing more than the car is worth in the long run. You may want to save a little more and put down a larger downpayment so you owe less in the future. Look into going with a short term loan option as well.
To get a good auto finance rate, it’s important that you shop around with different lenders as well. The types of lenders people often choose from are a bank, an online source, a credit union, or the car dealer. The car dealer option is listed last because in many cases they won’t give you the best rate, and there can sometimes be hidden fees. Before heading to the car dealer, you should get pre-approved for a bank loan and check out a credit union and online quote as well. This way, if the dealer offers you a loan, you have something to compare it with. This will also give you room to negotiate. Everything in the loan that the dealer offers you is negotiable, even the interest rate. There’s also a difference in finance rates between new and used cars. Typically, new cars will come with a better interest rate than used cars will.
Make sure you check your credit score ahead of time so you can walk in with knowing how much negotiating power you have. If you get rejected from one type of lender, see what the other lenders have to offer, including other dealerships if you were rejected by one.