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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 aim is to assist you make better financial decisions by offering interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare data for free and help you make sound financial decisions. Bankrate has agreements with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this website are provided by companies that compensate us. This compensation can affect the way and when products are listed on this website, for example, for example, the order in which they appear within the listing categories and other categories, unless prohibited by law for our mortgage, home equity and other products that lend money to homeowners. However, this compensation will affect the information we publish, or the reviews you read on this site. We do not cover the vast array of companies or financial offerings that could 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, 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.
Editor: Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate since late 2022. He believes in transparent reporting that allows readers to successfully find deals and make the most appropriate choices regarding their finances. He is a specialist in small business and auto loans.
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Making plans to purchase a vehicle for the first time is one some of the more stressful events that you can go through. With so many things to think about when buying a car and financing, the loan can fall to the side. Don’t let it. It isn’t easy to find a loan -however, the more research you can do now, the better off your finances will be later. Low interest rates are the key to a low-cost car regardless of what you end up buying. 1. Be truthful about your budget The biggest concern when buying a car should be the price. Consider how much you’ll pay each month and the total interest that you will pay to . However, you must also take into account the maintenance costs you expect to pay for as well as insurance and fuel costs. All are a factor in how much you spend. Experts recommend spending no greater than 10% of earnings on a car. Make use of an app to estimate the amount of monthly payments and the total amount paid. Check out resources such as Edmunds and Kelley Blue Book to see the amount you will pay for the vehicles you’re considering buying. Key takeaway
Assess your financial situation to determine without stretching your budget too thin.
2. Be aware that longer terms translate to more expensive vehicle is increasing. It’s not hard to find a loan that lasts six to seven years but they do have a significant downside. A longer loan duration does mean an lower monthly costwhich can be beneficial for those trying to stay within your budgethowever it will result in greater interest being paid in total. Even if you buy an inexpensive car it is possible to quickly be debt-ridden or owe more than the car is worth. For that first car loan, choose the most short-term term you can reasonably afford each month. This could mean that you need to cut back in some other ways, however it is by far the most secure option to protect yourself from having to pay more for your car than it’s worth. The most important thing to remember
You’ll likely save a bundle on interest rates by choosing a short loan term and reduce the chance of becoming upside down on your vehicle loan.
3. Review your credit report and score. Your credit score is the main aspect that lenders look at when determining your interest rate. To get a good rate, you’ll need an excellent credit score. You will also require a track record of timely payments. If you’ve never been able to establish your credit score and history, you’ll have a harder getting a bargain. There may be a need to apply the car loan, which will mean an interest rate that is higher. But if you can wait for your vehicle loan, try to and create a record of punctual payments. A lower ratio of debt to income shows lenders you can handle your finances. Paint a good financial picture so that your lenders can score an excellent deal. Take away
Work on improving your credit score before applying to get an attractive interest rate in the auto loan.
4. Shop for more than one lender Comparing lenders is the same as comparing car prices if you want a good deal. The types of lenders you can choose from include: If you’ve got a low to no history of credit you might be eligible for a first-time car buyer’s program by local credit unions. You’ll need to become a credit union member to apply for loans So, inquire about ways to join before moving forward. Large banks: Customers with an established relationship with a traditional bank might be eligible to receive an auto loan. If you are a first-time purchaser it is possible to pay higher rates. Online lenders: Online lenders generally have less strict qualifications than traditional banks. This is a good thing for those who do not have credit history or a high score, however, you may expect a higher interest rate to cover the risk of default for the lender. Marketplace lenders: These platforms offer a wide range of lenders. The application you submit is shared with the community so that you can view potential loan offers with lenders who may be a suitable match. Capitalist lenders may get financing through or finance company of the auto maker. They often feature auto loan programs for current students as well as recent graduates of college. Every lender offers different rates and ways of calculating who gets which terms. It is essential to shop around and apply with multiple lenders. This will allow you to determine what you qualify for, the amount you are able to spend, and how much you’ll be paying each month. The most important thing to remember is
Doing some research will help ensure that you get the best price on a car loan.
5. If you’re preapproved, shopping around offers an added benefit that it will likely end in a period that can last as long as 30 days. When you ask for preapproval the lender creates an informal inquiry that doesn’t affect the credit rating of yours. It gives you time go to the dealer and test vehicles without the pressure of securing financing. Preapproval gives you the upper hand in negotiations. Dealer financing can be expensive because dealers mark up their rates in order to gain a profit. If you visit the dealership with a preapproval document and a preapproval letter, you might be capable of negotiating a favorable deal on in-house financingshould that be your preferred route to take. Some dealers will also provide the option of either low-interest or financing. If you’ve already managed to secure unbeatable rates with another lender, your option is simple: reward yourself with a rebate. What’s the most important takeaway
Getting preapproved helps narrow the pool of lenders and reduces the impact of your credit rating.
6. Choose between used, new or leased Lenders provide different rates on automobile loans for . Lessors have their own way to calculate the monthly installment which is known as the factor rate — and you must study the factors before you take this step. If you are planning to purchase the latest model, be aware that they generally come with lower rates across the board. However, new cars are also significantly more expensive and are likely to decrease in value more quickly due to depreciation. Therefore, even though you’ll pay more interest for a used car but you can still save cash. The most important thing to remember
New vehicles generally have more attractive loan conditions than used vehicles However, the total cost will be greater.
7. Look for specials from the manufacturer. Most manufacturers offer first-time car buyer programs. Many offer incentives special deals for students in college and recent graduates. If you are planning on purchasing a brand new car with a good income and credit to back you up and want in-house financing it is sensible to check if you could make a profit. Manufacturers may 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 way you afford it. But if you already have a clear picture of what you’d like and have excellent credit, manufacturers offers can help you save money on the first car loan. Key takeaway
Contact the dealer to find out whether you’re eligible to receive financing incentives when buying a new car.
8. Utilize a co-signer, or co-borrower. If you do not have stellar credit, there is a possibility of getting a good deal. The lender will look at both credit scores in deciding whether or not to finance your vehicle. A loan to the vehicle, however you is liable for the loan if you cannot pay on time. However, a co-borrower shares ownership of the vehicle and shares the responsibility for this loan along with your. Whatever you choose to do the person to co-borrow with, they should have excellent or good credit and a steady source of verifiable income that meets the lender’s minimum requirements for approval. The most important thing to remember is
A co-signer or co-borrower could increase your chances of approval and enable you to secure a better deal on the car loan.
9. Have a big down payment. Once you’ve determined how much you can spend, start that’s at least 20% of total cost. If you’re unable to afford this amount, you should aim for a down payment of minimum 10%or whatever you can be able to. Try Bankrate’s tool to find an amount that is suitable for you. It may be tempting to purchase an expensive vehicle however, first-time buyers — and all car buyer — need to make a downpayment to lower the amount they must finance. A bigger down payment can increase the chances of getting a favorable interest rate, lowers your monthly payments and decreases the amount of interest you’ll be paying during the loan’s term. The most important thing to remember is
A bigger down payment can make you eligible to receive more favorable loan terms, and your monthly payments will be lower.
Next steps The most important thing to do to securing a great deal on your first auto loan is to be open to shopping around and be patient. You can walk away with the best rate when you compare lenders, making the cost of a downpayment, and working on building your credit. Find out more
Allison Martin’s career began more than 10 years prior to that as a digital content strategist, and she’s since been published in several leading financial 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 easily land deals and make the best decisions for their financials. He is a specialist in small business and auto loans.
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