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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 better financial choices by providing you with financial calculators and interactive tools that provide objective and unique content. This allows users to conduct research and compare data for free - so that you can make sound financial decisions. Bankrate has partnerships with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site come from companies that compensate us. This compensation can affect the way and when products are listed on this website, for example for instance, the order in which they may appear in the listing categories, except where prohibited by law for our mortgage, home equity and other products for home loans. But this compensation does affect the information we publish, or the reviews you read on this site. We do not cover the universe of companies or financial offers that may 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 prior to that as a digital content strategist. She's been published in numerous prestigious financial media 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 believes in clear reporting that helps readers easily land deals and make the best decisions for their financials. He is a specialist in auto and small business loans.
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The process of buying a car for the first time is to be one of the most stressful situations out there. With so many things to think about regarding the actual car to consider, the loan could fall by the wayside. Don't let it. Securing a requires research -and the more you do now you do, the better off your finances will be later. Low interest rates are the key to a low-cost car no matter the car you decide to purchase. 1. Be upfront about your budget. The most important factor when you purchase a car ought to be the cost. Be aware of the amount you spend each month, and the overall interest paid to . However, you must also take into account the maintenance costs you expect to pay for of the vehicle, fuel and insurance all contribute to the amount you'll spend. Experts advise not spending greater than 10% of income on your car. Utilize an estimate tool to calculate monthly payments and total interest paid. You can then look up resources such as Edmunds as well as Kelley Blue Book to see the amount you will pay for the vehicles you're considering buying. What you should take away from this is
Examine your financial situation to determine without stretching your budget too far.
2. Remember that longer terms mean a higher cost The average car is rising. It's not hard to find an loan lasting six to seven years however they have a major negative. A longer loan period does result in an lower monthly cost- which could be helpful when you're on a tight budget -however, it also means higher interest rates overall. Even if you purchase an affordable car it is possible to quickly be debt-ridden or owe more than what it's worth. For that first car loan, choose the shortest term you are able to afford each month. It may mean you have to cut back in other areas, but it's by far the safest choice to ensure that you don't end up having to pay more for your car than what it's worth. Key takeaway
You'll likely save a bundle in interest by choosing a shorter loan time frame, and you can minimize the risk of getting upside down on your car loan.
3. Check the credit score and report Your credit rating is one of the most important factor lenders consider when determining the interest rate. To get a good rate, you'll need an excellent credit score. Also, you'll need a history of on-time payments. If you've not had the opportunity to improve your credit score and history it will be a difficult getting a bargain. It could be necessary to pay this, which can mean an interest rate that is higher. If you're able to put off paying on your vehicle loan attempt to create a record of punctual payments. A low ratio of debt to income indicates to lenders that you are able to manage your finances. Create a positive financial picture for lenders to get a good deal. Key takeaway
Work on improving your credit score prior to applying for an interest rate that is competitive on an auto loan.
4. Choose with more than one lender Ccomparing lenders is just as critical as comparing cars for a great deal. There are a variety of lending options to choose from. include: If you have a poor to no history of credit you may be eligible for a first-time buyer's loan through a local credit union. You'll have to be a credit union member in order to qualify for loans So, inquire about how to join prior to proceeding. Large banks: Customers with an existing relationship with a traditional institution may be eligible in the auto loan. As a first-time car buyer you could be charged higher interest rates. Internet lenders generally have less strict eligibility requirements that traditional bank. This is a good thing for those who do not have credit history or a high score, but you can expect a higher rate of interest to mitigate any risk posed for the lender. Marketplace lending: The online 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 from lenders that may be a suitable match. The lenders you can use as captives: may also secure financing through a , or the finance company of the manufacturer of your vehicle. They usually offer auto loan programs for currently enrolled students and recent college graduates. Each lender offers different rates and ways of determining who is eligible for what terms. It is essential to research and make an application with a variety of lenders. This allows you to see what you can qualify for, what you could spend and what you can expect to pay every month. Key takeaway
Shopping around helps ensure your get the most competitive deal on auto loan.
5. If you're preapproved, shopping around offers additional benefits that is it could end up with a period of up to 30 days. When you ask for preapproval the lender generates an informal inquiry that doesn't affect the credit rating of yours. You'll have time to visit dealers and automobiles without the stress of having to obtain financing. Preapproval gives you the advantage in negotiations. Dealer financing is usually expensive because dealers mark up their rates in order to make profits. However, if you go to the dealer with a preapproval form and a preapproval letter, you might be able to negotiate a good deal on in-house financing -should that be the route you want to go. Some dealers will also provide the choice between or low-interest financing. If you've already managed to secure an unbeatable rate with another lender Your choice is easy: reward yourself by recouping the cost. The most important thing to remember
Preapproval helps you narrow down your list of potential lenders and minimizes the impact on your credit score.
6. Make a decision between used, new or leased Lenders offer different rates on auto loans for . Lessors have their own method of calculating the monthly payments -- called the factor rate -- and you should study the factors prior to taking this decision. If you plan on buying, know that new cars generally offer lower rates across board. However, brand new vehicles are also more expensive and will decrease in value more quickly due to depreciation. Therefore, even though you'll pay more interest for a used car, you may still save money. What's the most important takeaway
New cars typically come with more affordable loan terms than used cars however, your total cost will be more expensive.
7. Find specials offered by the manufacturer. Many companies offer first-time buyers programs. Some offer discounts special deals for students in college and recent graduates. If you are planning on purchasing a brand new car, have the income and credit to back it up, and are interested in financing through your home is a good idea to check if you could save a few dollars. Manufacturers can also offer rebates and special leases for new models. Keep an eye out for these. There will be a limit in the items you can purchase and the amount you can spend it. But if you already have a clear idea of what you'd like and have excellent credit, manufacturers specials could make a difference on the cost of your first auto loan. The most important thing to remember
Contact the dealer to see whether you are eligible for financing incentives if you're buying a new car.
8. Use a co-signer or co-borrower If you don't have great credit, you might have a chance be able to get a great deal. The lender will take into consideration both credit scores in deciding whether or not to finance your vehicle. A loan to the vehicle, however you will be liable for the loan when you fail to pay on time. But, a co-borrower shares ownership of the vehicle and equal responsibility in your loan together with the borrower. No matter which option you pick the person you choose to borrow from, they must be able to demonstrate excellent credit and a steady source of verifiable income that is sufficient to meet the lender's minimum requirements for approval. Key takeaway
A co-signer or co-borrower can increase your chances of approval and enable you to secure an even better rate on an auto loan.
9. Make a large down payment Once you know how much you can spend starting with a minimum of 20% of total cost. If you're unable to afford this amount, you should aim for an amount of minimum 10%or whatever you can be able to. Try Bankrate's tool to find a figure that works for you. It's tempting to buy an expensive car however, first-time buyers -- and every car purchaser should use a down payment to cut down on the amount they must finance. A bigger down payment can increase the chances of getting a favorable interest rate, and also lowers the amount you pay each month and reduces the amount of interest you'll be paying throughout the loan's duration. Key takeaway
A bigger down payment can make you eligible to get better loan terms, and your monthly payment will be less expensive.
Next steps The key to getting a good deal on your first car loan is to be in the game and compare. You can walk away with the best rate when you compare lenders, saving up on a down payment, and working on your credit score. Learn more
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Written by
Allison Martin's work started over 10 years prior to that as a digital content strategist, and she's since been published in several leading financial publications, 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 the end of 2022. He is a fan of transparent reporting that allows readers to successfully find deals and make the best decisions for their financials. He specializes in auto and small business loans.
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