When shopping for a new or used car, you want the best car financing rates available. Finding the lowest rates is not always easy. If you're willing to take the time, do the research and be patient--you can find the best rates.
Assess Your Current Credit Situation
First, get copies of all three of your credit reports: Equifax, Experian and TransUnion. Once you receive the reports, go over them thoroughly and note any discrepancies or negative items on the report that are not yours. If there are discrepancies or mistakes on them, contact the reporting agency immediately and dispute them. If there are negative items that are yours, do not proceed any further until you address those issues. Consider paying down some higher loan balances or bringing current loans that are currently past due. If you do not, you will not be able to receive the best rates available.
Be Realistic in Your Expectations
Once you have reviewed your credit reports and know your credit score, you need to be realistic about the interest rate that you will qualify for. For instance, if you have a credit score in the mid 600s, you will certainly not qualify for the lowest interest rates available. However, you can help ensure that you get the best rate available for your particular level of credit worthiness.
Compare Online Lender Rates
Once you know what credit risk category you're in, visit sites like LendingTree or E-Loan. These types of sites help you shop for the lowest rates from a number of different auto lenders. You simply complete the online application and provide the required information. The website submits your loan request and matches it with the lender that is willing to give you the best rates and terms for your particular car loan.
Have Your Check in Hand
Even if you decide not to use prearranged auto financing, it is a good idea to apply and be approved anyway. If you walk into the dealership with a check in hand, this will force the dealership to compete for your auto loan. Sometimes, manufacturers can offer financing incentives that make their auto loans very attractive and tempting. Therefore, always make sure that you listen to what the dealership has to offer--even if you're already have been approved for financing. You can always return the check to the online lender, and say no thank you.
Consider Your Trade-In
Another thing you may want to consider is not using a trade-in, or simply waiting to apply for a loan. For instance, if you are planning on trying to trade in a vehicle, make sure that the vehicle is worth more than you owe on it. If it is not, the balance will probably be rolled in, or added to, your new loan. The more that a bank or lender has to loan on a particular vehicle--the higher their risk will be for them. Therefore, don't give the bank or lender any excuse to increase your interest rate.
Car Finance Rate Conditions
There are many things that you should take in to account with any car finance rate. You should look at more than just the rate itself.
Of course the rate is the first thing most of us look at. If one lender can offer you a lower rate than another, then the chances are pretty good that it will look more appealing to you. But you also want to look closely at any specials being offered. While one lender may offer you a 0 percent rate for the first three months, what happens to the rate after that? You may fair better if you choose a lender who has a low rate with no intro period. Often, those intro rates are followed by higher than average rates.
Length of Loan
The amount of time you will pay on the car should be another factor you look at. Typically, a longer term will have a lower rate, but don't let this fool you. You may be better off paying a point or two more in interest over a shorter period of time. Longer loans can offer lower rates because the finance company is depending on your paying that interest for longer.
Many finance companies throw in extra fees that you won't ordinarily notice. Things like early pay off penalties and increased interest on late payments will hurt you more than they help. If you find a lender that doesn't have these terms, but has a slightly higher rate, you may want to consider going for them.
Related Questions and Answers
What is an Interest Only Rate for Auto Loans?
Interest only loan rates for auto loans are where the borrower only repays the interest earned on the account for a fixed period of time. During this fixed period of time, the borrower does not make payments on the principal amount of money borrowed from the lender. The most common lengths of time for these types of auto loans are five and ten years. Once the interest only loan time expires, the principal of the loan is amortized for the remaining period of the loan. After the interest only period segment of the loan expires, the borrower must pay both interest and the principal on the loan.
What is the Minimum Credit Score for Getting an Auto Loan?
The minimum credit score for obtaining an auto loan in the United States sits at or above 700. Most lenders will want your credit score to be no lower than 650 before they approve a borrower for an automotive loan. Your credit score is not the only thing that auto loan lenders look at. They also look at your income, amount of payments, the down payment on the loan, a trade in and any previous relationships with the vehicle dealer. Some auto loan lenders will require borrowers with a credit score lower than 760 to provide the lenders with a credit report.
Is 700 a Good Credit Score for Getting a Low Rate Auto Loan?
Many vehicle owners, and those looking to buy a brand new vehicle, ask themselves the following question: "Is 700 a good credit score?". For the most part, lenders will approve borrowers with a credit score of 650 or higher for an automotive loan in today's world. Some lenders, on the other hand, will not approve an auto loan for borrowers with a credit score lower than 760. If a borrower's credit score is below 760, the lender might ask for the borrower's credit report prior in approving them for the automotive loan to make sure they can pay off the loan.
How Good Does My Credit Have to Be for a No Credit Check Unsecured Loan?
For the most part, a borrower's credit should be around 760 for no credit check on unsecured loans. Should the credit score be under 760, the lender might ask the borrower for a credit report to determine if the borrower will be able to pay off the loan. The lender will also look at the income of the borrower, the amount of the down payment, the amount of the monthly payments to be made, and any prior relationship with the automotive dealer. If the loan cannot be acquired at the dealership, the borrower can always attempt to acquire the loan at their local bank.