Shopping for a Car Loan?: Read This First if You Want the Best One

shopping for a car loan

You successfully negotiated for the best price on your new car. We know you’re riding high on that win, but you aren’t out of the woods just yet.

Your next challenge is to get the best car loan. Otherwise, that great purchase price you fought for is for naught.

There are a few things you can do to make sure that you get the best loan possible to pair with your great purchase price. That way you save the most amount possible.

Go Prepared

The first mistake people make is not having financing secure before they visit the dealer.  When you do this, you are at the mercy of the dealer and the terms they offer.

Instead, determine what you can afford both for the total and monthly cost. You need to balance the two to ensure you get the best terms.

The best thing you can do is to use a car loan calculator to determine what your best rate and total loan amount are.

Pay Attention to the Total Cost

When you compare loans, look at the overall cost of the loan and the annual percentage rate, or APR. You can save a lot of money by securing a low APR.

But you also need to look at the total length of the loan. Shorter loan terms mean you’ll have higher monthly payments, but pay less over the life of the loan.

You want to keep the length of the loan as short as you can comfortably afford. This is because the longer the loan is, the longer it will take for you to build equity in the car. This is when the amount you owe is less than what the car is worth.

Know Your Credit Report

A lender is going to look at your monthly income and your credit report to determine what the loan terms are that they are willing to offer you. Your monthly income tells them what you can afford while your credit report tells them your likelihood of actually paying.

Before you start looking for an auto loan you should check your credit score and review your credit report. This way you can correct any mistakes or issues.

You can check your credit report for free annually by going to one of the major credit reporting bureaus.

Shop Around

You may be tempted to try to find a loan as quickly as possible. But this isn’t always the best tactic. Once you know your credit report, you have the ability to shop around for the most favorable loan.

There are a couple different places you can go that offer auto loans. You can apply to a large national bank like Capital One or Bank of America.

If you have a relationship with your local bank or credit union, they may be able to work with you personally on getting the best rate. Your other option is to try an online lender that focuses on just auto loans.

Finally, your last resort is to work directly with the dealer.

Most smart shoppers will get a quote from each type of lender, no matter which type of lender they want in the end. This will let you be sure that you have the best terms for your loan.

Compare Offers

Once you get a few different quotes that you are interested in, you’ll want to compare them. There are a few different terms you should look at when comparing loans.

Terms to Pay Attention to

Look at the loan term, the APR, down payment, and taxes and fees. Once you have all of these different terms, you will be able to determine the actual total cost of the loan.

You may find that while one loan has a great APR, its other terms are not as favorable. While another loan with a higher APR is a better choice overall.

Check the Fine Print

Some lenders have fine print that put restrictions on the car you buy. Make sure you know these before you start shopping around for your car.

Sometimes lenders will exclude certain brands. Other times lenders will require you to buy from a specific network of dealers. Finally, if you want to buy from a private seller, you’ll need to make sure that is allowed by the lender.

Your Credit When Applying

Pay attention to what the lender does when you apply for your different loan quotes. Some will offer a pre-approval, while others offer a pre-qualification.

These are not the same thing. A pre-qualification will only put a “soft” pull on your credit. This won’t lower your credit score, but it also is just an estimate on your loan terms.

A pre-approval is a “hard” pull on your credit. This will temporarily lower your credit score a few points. The cost of the drop in credit score means that the terms quoted you are the actual rates of your loan.

If you know that you are going to have a few pre-approval quotes, time them so they happen all around the same time. Lenders and the credit bureaus understand that you are going to shop around.

They are kinder to you when you have multiple hits at one time rather than spreading them out. A good rule of thumb is to keep all of your pre-approval applications within 14 days of each other.

Get Your Best Car Loan

The best thing you can do to find the best car loan is to do your homework and be prepared. You’ll want to do the math and determine what monthly payment and total loan amount you can afford.

Then you’ll want to check your credit score and your credit report. This will let you get your report in line and fix any possible mistakes or negative markers.

Your next step will be to shop around for your loan. This will let you prequalify and compare offers to find the best one for you.

Be sure to use these 7 shortcuts when buying your car.