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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 smarter financial decisions by offering financial calculators and interactive tools that provide objective and unique content. This allows you to conduct your own research and compare data for free – so that you can make sound financial decisions. Bankrate has agreements 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 that pay us. This compensation can affect the way and where products appear on this website, for example such things as the order in which they be listed within the categories of listing, except where prohibited by law. Our loans, mortgage,, and other products that lend money to homeowners. This compensation, however, does have no impact on the information we provide, or the reviews that appear on this website. We do not cover the universe of companies or financial offerings that could be available to you.
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6 minutes read. Published September 30 2022
Written by Allison Martin Written by
Allison Martin’s career began more than 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 the clarity of his reporting, which helps readers successfully land deals and make the best decisions for their financials. He specializes in small and auto loans.
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Making plans to purchase a vehicle for the first time could be one some of the more stressful experiences that you can go through. With so many things to consider about the actual car to consider, the loan can fall to the side. Don’t let it. Finding a car requires a lot of researchand the more you do now you do, the better off your financial situation will be in the future. A low interest rate is the most important factor to a low-cost car regardless of the car you decide to purchase. 1. Be upfront about your budget. The most important factor when purchasing a car must be the price. Weigh how much you will be paying each month as well as the total amount of interest you pay to . You should also think about the expected maintenance as well as insurance and fuel costs. All are a factor in how much you pay. Experts advise not spending greater than 10% of earnings on a vehicle. Make use of an app to estimate monthly payments and total interest paid. You can then look up resources such as Edmunds as well as Kelley Blue Book to see what you could expect to be able to pay for the vehicle you’re interested in purchasing. Key takeaway
Examine your financial situation to determine without stretching your budget to the limit.
2. Be aware that longer terms translate to an increase in cost. The price of a car is rising. It’s not hard to locate a loan lasting six to seven years however they do have a significant disadvantage. A longer loan duration does mean a lower monthly payment -this could be advantageous when you’re on a tight budget -however, it also means higher interest rates overall. Even if you buy an affordable car, you can quickly become in debt, or pay more than the car is worth. When you take out the first time you take out a car loan opt for the shortest term you can afford every month. This could mean that you need to reduce your spending in different areas but it’s by far the safest choice to ensure that you don’t end up being liable for more on your vehicle than it’s worth. The most important thing to remember
It’s likely that you’ll save money in interest by choosing a shorter loan time frame as well as reduce the risk of getting upside down on your vehicle loan.
3. Examine your score on credit reports and credit scores. Your credit score is the main element that lenders take into account when determining your interest rate. To get a good rate, you must have excellent credit. Also, you’ll require a history of punctual payments. If you’ve never had the opportunity to improve your credit score and track record, you’ll have a harder getting a bargain. You may have to use this, which can mean more interest. If you’re able to put off paying on your vehicle loan, try to and establish a track record of timely payments. A lower ratio of debt to income shows lenders you can handle your financial situation. Create a positive financial picture for lenders to get an attractive deal. Key takeaway
Make an effort to improve your credit score before applying to qualify for an interest rate that is competitive on the auto loan.
4. Find for more than one lender Comparing lenders is the same as comparing car prices if you want a good bargain. There are a variety of lending options to choose from. include: If you’ve got a low to no history of credit you might be eligible for a first-time buyer’s program through a local credit union. You’ll need to be a credit union member in order to qualify for loans and other financial services, so ask about how to join prior to making any moves. Big banks: Consumers with an established relationship with a traditional bank may qualify in the auto loan. As a first-time buyer, you may face higher interest rates. Internet lenders generally have less strict qualifications as compared to traditional lenders. This is great news in the event that you don’t have a credit history or have a high score, however, you may expect a higher rate of interest to cover the risk of default by the lender. Marketplace lenders platforms have a vast network of lenders. When you submit an application, it is shared with the network so you can see potential loan offers with lenders who might be a good match. The lenders you can use as captives: may obtain financing through a , or the finance company of the manufacturer of your vehicle. They often feature auto loan programs for current students as well as recent graduates of college. Each lender offers different rates and methods to determine who will get which terms. It is essential to compare rates and get in touch with several lenders. This lets you see what you qualify for, how much you can spend and what you will be expected to pay every month. Key takeaway
Shopping around can help you get the best rate on an auto loan.
5. Get preapproved Shopping around has another benefit: It likely ends in a period that can last up to 30 days. If you apply for preapproval, the lender will issue an informal inquiry that doesn’t have an impact on the credit rating of yours. It gives you time for a visit to dealers as well as test drive cars without the pressure of needing to secure financing. Being preapproved gives you an advantage in negotiations. Dealer financing is typically costly because dealers increase their rates to gain profits. If you visit the lot with a preapproval letter that you have signed, you could be in a position to negotiate a great deal on in-house financing, if that’s the route you want to go. Certain dealers offer the option of either low-interest or financing. If you’ve been able to get unbeatable rates with another lender Your choice is clear: Reward yourself with a rebate. What’s the most important takeaway
Being preapproved can help narrow your list of potential lenders and also reduces the effect of your credit rating.
6. Decide between new, used or leasing Lenders have different rates for automotive loans for . Lessors have their own way of calculating the monthly payment — called the factor rate and you must study the factors prior to taking this decision. If you plan on buying it, remember that new cars generally come with lower rates across the all levels. However, newer cars are also significantly more expensive and are likely to lose value faster through depreciation. Therefore, even though you’ll have to pay higher interest rates on a used vehicle, you may still save cash. Key takeaway
New cars typically come with more attractive loan conditions than used vehicles however, your total cost will be higher.
7. Check out manufacturer specials Most automakers offer first-time buyer programs. Many offer incentives to college students as well as recent graduates. If you are planning on purchasing a brand new car, have the income and credit to back it up and want in-house financing it is sensible to investigate whether you can make a profit. Manufacturers may also offer rebates and leases with special terms on new models. Keep an eye out for these. You will be more limited to what you can buy and the way you spend it. However, if you have a clear idea of what you’re looking for and have excellent credit, manufacturers offers can help you save money on your first auto loan. What you should take away from this is
Contact the dealer to see whether you are eligible for incentives on financing if you’re purchasing a new ride.
8. Make use of a co-signer or co-borrower If you don’t have stellar credit, you might have a chance be able to get a great deal. The lender will consider both scores of your credit in deciding whether or not to finance your vehicle. A to the vehicle but will become responsible for the loan if you cannot pay on time. However, a co-borrower shares ownership of the car and is equally responsible in this loan with you. Whatever you choose to do, the individual should have good or excellent credit and an ongoing source of reliable income that meets the lender’s minimum threshold for approval. What’s the most important takeaway
A co-signer or co-borrower could strengthen your approval odds and allow you to get an even better rate on an auto loan.
9. Have a big down payment Once you know what you can afford to spend to start, make sure it’s at least 20 percent of your car’s total cost. If you can’t afford this amount, try to make a down payment of minimum 10%or whatever you are able to afford. Consider using Bankrate’s to find an amount that is suitable for you. It’s tempting to get the most expensive vehicle, but first-time car buyers — and all car purchaser must make a down payment to reduce the amount they have to finance. A higher down payment increases your odds of getting a great interest rate, lowers your monthly payments and decreases the amount of interest you’ll be paying during the loan’s term. What’s the most important takeaway
A bigger down payment can be eligible to get better loan conditions, and your monthly installment will be lower.
Next steps The most important thing to do to getting a good deal on your first car loan is to remain in the game and compare. You can get the best rate when you compare lenders, making the cost of a downpayment and improving building your credit. Learn more
Allison Martin’s work began over 10 years ago as a digital content strategist. She’s been published in several leading financial outlets, including 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 late 2022. He is a fan of transparent reporting that allows readers to confidently find deals and make the most appropriate choices regarding their finances. He specializes in small business and auto loans.
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