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4 min read Published September 20 20, 2022

Written by Rebecca Betterton Written by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the details of borrowing money to purchase an automobile.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to control their finances with precise, well-researched and well-sourced facts that break down otherwise complex topics into manageable bites.

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Credit score, car you purchase, and your lender all play a role in the cost of your auto loan. Finding the best place to borrow from is a process that involves numerous applications and extensive research before shopping. Preapproval gives you more bargaining power at the dealership — and it could help you find a low-cost car loan that saves you thousands of dollars over the loan period. 5 steps to getting a low-cost car loan Make sure you are prepared to look around for a loan by knowing your budget as well as your credit score and loan duration. These steps will to find a low-cost — and perhaps even affordable — lender. 1. Know your budget Experts recommend that you do not spend more than 20 percent of your net annual income to auto loan expenses, which include the monthly loan payment, fuel , and other associated costs. (The suggested maximum for new and used car payments of 15 and 10 respectively.) Ideally, you’ll visit an auto showroom with a clear plan of what you’d like to buy, with the additional . Be mindful of your budget when choosing a vehicle that is suitable for your requirements. Make use of sites such as Edmunds as well as Kelley Blue Book for car estimations of reliability and price. The interest rates for new cars are usually lower than on — however used cars typically cost less overall. 2. Check your credit report Lenders take your credit score when they evaluate your ability to repay a loan. The higher your credit score, the lower your interest rate. If you’re looking to secure the most favorable rate that the lender provides, a high score is usually required. You can pull your score as well as history from Equifax, Experian and TransUnion or at no cost at . Make sure you have your credit rating in the best possible condition before trying to get an auto loan. Some ways to include dispute resolution with credit bureaus. If you discover any mistakes to your credit reports, file dispute with the appropriate credit reporting agency immediately. Incorrect information on your credit report inaccurately reported can drag your credit score down. Making sure you are current on any past due debt balances. The amount of your payment history is the 35 per cent of your score on credit, it’s crucial to bring any debts that are past due and to make timely payments on all outstanding debts moving forward. Reducing your unpaid debt balances. Try to reduce your credit utilization ratio of 30 % or lower, to improve your credit score. You can also to lower your credit utilization rate. Beware of new credit applications. Avoid applying for other types of loans or credit cards. A string of hard inquiries within an unspecified time period can hurt your score on credit. 3. Apply to multiple lenders. Although most lenders use the same factors to determine your interest rate, they apply these factors differently. The most effective way to get the cheapest deal based on your credit is to apply to many lenders. Get information from several lenders like credit unions, banks or online lenders and then compare their rates of interest. Shopping around will give you an idea of what’s available. And once you have an idea of what you qualify for, you’ll be able to get an understanding of your monthly installment will be. In addition, if you decide to negotiate, you are able to make an arrangement with an emergency plan already in place. 4. Make an application for loans within 14 days of the date you apply. Each credit application that you make will result in a hard credit inquiry that dips the credit rating by just a few points. The inquiry stays on your credit report for up to two years. The impact of hard inquiries can affect the score of your credit for up-to 12 months. This makes several applications during a brief period problematic for your credit score. Fortunately, an exception to the rule applies to auto loans. The loan applications that are submitted within the 14-day period count as a single inquiry, minimizing the effect on your credit score. Be aware that any applications made within this time frame could result in a more significant drop of your credit rating and cause you to be ineligible for most favorable rates. 5. Take the time to calculate Although a low annual percentage rate (APR) looks appealing however it’s not the only thing you need to think about. The trade-in value of your old car, and yours will be the factor into the total cost of your new vehicle. The more you pay upfront as well as the lower interest you’ll pay in the long runthe less expensive you automobile loan can be. Make use of an app to calculate the total amount of interest you’ll be paying and the monthly amount you will pay. It is a useful instrument, especially when you’ve prequalified with multiple lenders and understand the rates you can anticipate. The majority of auto loans are available in terms of 24 to . While a longer period means a lower monthly payment however, it is more expensive in the long run due to the cost of interest. Pick a loan that has the shortest time you can reasonably manage to reduce the cost. Where to get the cheapest car loan Dealerships collaborate with banks, credit unions as well as online lending institutions to get you financing. To get the cheapest car loan, you should to be sure to avoid paying additional interest for a similar loan. Banks: If you have an open account at a bank, check to get an auto loan. You may be able to get a discount for a relationship along with a favorable interest rate. Because the majority of dealers use banks to finance their business they will provide the same service . Online lenders: Since online lenders have to compete with credit unions and banks and credit unions, they usually have similar rates. Best of all, many work with borrowers with some credit history, which makes them an excellent option for a cheap loan if you lack an extensive credit history. Credit unions: Since they are nonprofit, they often offer competitive rates and similar loan terms as banks. This means they’re one of the most affordable options to obtain an auto loan. However, since you must be already a member, it might take a few months -with having an active account before you’re eligible to apply. Next steps Car loans are one of the largest expenses that people will have and so you must put in effort to find the cheapest vehicle loan that you can. Find out the monthly payments and the total loan cost you can afford before signing off on the purchase of a new car. Research and prequalify with multiple lenders to ensure that you’re getting the best deal. Find out more


Authored by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers with the ways and pitfalls of using loans to buy a car.

Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to take control of their finances with concise, well-researched, and well-informed information that breaks down complex topics into manageable bites.

Auto loans editor

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