How to Get a Good Interest Rate on a Car Loan
Are you buying a new car and planning to get a car loan?
Then keep the following tips in mind to get a reasonable interest rate and avoid the crucial mistakes that cost you even more money over the long run.
Tip #1: Don’t Get Financing at the Dealership
Most car buyers get their car loans at the same place they buy the car. Their reason is that it’s convenient, and the dealers give great interest rates. Do you have the same sentiment?
The problem is that as attractive as the dealer’s advertised interest rates are; they’re likely reserved only for buyers with excellent credit scores. Moreover, there’s a good chance you can find an even better deal elsewhere, such as with community banks and credit unions. We advise you to do your homework and get your loan lined up and ready before you visit the dealer. If the dealer offers you an even better deal, you can still have the loan canceled.
Tip #2: Check Your Credit Score
Do you know your credit score? If not, and if you let the dealer come up with your car loan, you’re in BIG trouble! The dealer might convince you that your credit rating is worse and increase your interest rates accordingly.
Get your credit score by requesting credit ratings from TransUnion, Equifax, and Experian. You can also check your credit score by applying for preapproved car financing. Car loans from banks and credit unions can give you a pretty good idea of the vehicles and interest rate your credit score qualifies.
Click here to learn how you can improve your credit score.
Tip #3: Watch Out For Scams
Another risk you run when you let your dealer set up your financing for you is getting scammed. A common scam is carried out when the dealer calls you a few days after you sign the dotted line and bring your new car home. The dealer tells you the car loan didn’t work out and that you’ll need to renegotiate a new loan with a higher interest rate. If you disagree, your only option is to give the car back, losing your deposit. Protect yourself by getting your car loan elsewhere or not buying the car until you’re 100% sure the dealer’s financing is finalized.
Tip #4: Don’t Focus on the Monthly Fee
Lastly, one significant mistake is going for the loan with the lowest monthly fees. Low monthly fees typically mean higher interest rates and more extended payment periods. If you’re not careful, you might end up paying over twice the car’s value throughout the life of the loan. Remember that at least two things go into the monthly fee:
The loan’s premium is an additional factor if you’re trading in your old car. A single monthly fee won’t tell you how much of each of the above is going into it, and there’s no way of knowing whether you’re paying too much for your loan or getting too little from your trade-in.
You don’t need to answer if the car salesman asks you how much you can afford to pay each month. Don’t get trapped! Focus instead on the total amount you’ll be paying for the car loan over its lifetime. It’s the best way to save money and get a decent car simultaneously.
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