With good reason, consumers often feel powerless when it comes to borrowing money. After all, who really sits down to study the ins and outs of lending or crunch numbers on a financial calculator? The good news is you don't have to be a money expert to get a superior deal on a car loan. All it takes is some planning and attention to these basic steps:
Boost your credit: This isn't the easiest step, but it's certainly the most effective. Almost anyone can get a car loan from a dealer, but you'll need a good credit score to qualify for favorable rates. Take the time now to check your score and work to bring it up if necessary. You'll get the biggest benefit by paying down credit card balances and bringing any delinquent accounts up to date.
Make a down payment: A down payment means you have skin in the game. You'll be more motivated to repay the loan as scheduled, which means less risk for lender. Even a 5% down payment can make a big difference in your interest rate. In general, the more you put down, the lower your rate will be.
Shop for the best rate, not payment: Many lenders will try to sell you a loan based on the payment amount. It's easy to make a loan seem like a good deal by spreading the payments over a longer period of time. But what really matters is the interest rate, which dictates how much you will pay for the credit. So if a lender offers you an affordable payment, don't automatically assume you're getting a good deal.
Avoid conditional financing: Never take a car from a dealer until the terms of the financing are finalized in writing. If the financing is "conditional" or "contingent" on some yet-to-be-verified information, the terms could change, and usually not for the better.
Look for discounted rates: If you're buying new, discounted interest rates as low as 0% are often available from the manufacturer. These offers are below market and make the car cheaper to buy, just like cash rebates.
Check out local credit unions: Credit unions are nonprofit and their operating costs are fairly low. Their rates on car loans are usually very competitive with commercial lenders. In fact, rates are often a point or so lower.