Buying a car is fantastic, but it can also be overwhelming. It’s not just the hundreds of new and used makes and models to consider. It’s also figuring out how to pay for your new ride along with the potential costs of vehicle insurance and maintenance. But shopping for a loan with the best rate is probably the best use of your time and money.
Planning for a loan
Securing a loan for something as big as a car isn’t necessarily easy. When you are shopping for a loan, good credit and a good relationship with a lender will help tremendously.
- Build your credit —Tracking your credit score is simple. Not so long ago, just checking your credit rating could damage your score. And then, you even paid for the privilege because there were no free credit scores. Today, you can find your score at no cost and even find credit repair services to help you build it up.
- Determine what you can afford —Aside from your residence, a car is undoubtedly one of your most significant purchases. With scarce new cars and scarcer used ones, make sure you’re spending your funds carefully. Review your current income and credit commitments to calculate what you already pay each month. Then you can decide what else you can afford to spend.
- Put together a down payment—A down payment or a trade-in will reduce the number and amount of the installments on your car loan. If you don’t plan to keep your current vehicle, trade it in as a down payment. The dealer will appraise the vehicle, give you a dollar value, and apply that amount toward your purchase. If you’re putting cash down, the typical down payment these days is 10-20% of the purchase price.
Shopping for a loan
Instead of taking the first offer from your bank or auto dealer, shopping for a loan can save you money.
- Pre-qualify with multiple lenders—Whether you’re looking at new cars or used ones, consider applying to more than one lender. Because banks, credit unions and online lenders may assess your finances differently, try to pre-qualify with all of them. This approach will let you shop while knowing exactly what you can spend.
- Choose a bank loan or dealer financing —A bank loan’s interest rate doesn’t carry the markup common at a dealership. Dealers will usually give you better financing on a new car than a used one. On the other hand, some used car dealers specialize in working with those who need credit assistance.
After you find the one
Eventually, you will find the right choice for your new or used car. Then you can take the
Compare offers from other dealers —Assuming your chosen vehicle is not a one-of-a-kind collector’s item, look at other dealers to compare offers. For example, this tactic is especially helpful if you’re looking for a small gray or silver SUV with specific features but don’t really care whether it’s a Jeep or a Subaru.
- Pre-purchase financing —Some lenders will give you pre-approved or pre-purchase financing, which lets you know precisely what you can spend. Approved cash in hand can improve your purchase opportunities because the dealer knows that you have it to spend.