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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 offering you financial calculators and interactive tools, publishing original and objective content, by enabling you to conduct your own research and compare information at no cost and help you make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website are provided by companies that compensate us. This compensation may impact how and when products are listed on the site, such as such things as the order in which they may be listed within the categories of listing, except where prohibited by law. This applies to our mortgage, home equity, and other products for home loans. However, this compensation will affect the information we provide, or the reviews that appear on this website. We do not cover the entire universe of businesses or financial offers that may be available to you.
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6 min read Published September 30, 2022
Written by Allison Martin Written by
Allison Martin’s career started over 10 years ago as a digital media strategist. Since then, she’s been published in several leading financial media outlets, 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 from late 2022. He is a fan of clear reporting that helps readers easily land deals and make the most appropriate choices regarding their finances. He specializes in small and auto loans.
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Making plans to purchase a vehicle for the first time is likely one among the toughest situations that you can go through. With so many aspects to consider about the actual car and financing, the loan can fall to the wayside. Don’t let it. Securing a requires research -however, the more research you can do now you do, the better off your financial situation will be in the future. Low interest rates are the key to an affordable car, regardless of what you end up buying. 1. Be honest with your budget. The main concern when you purchase a car ought to be the cost. Be aware of the amount you be paying each month as well as the total amount of interest you pay to . However, you must also take into account the expected maintenance, insurance and fuel all factor into how much you’ll spend. Experts suggest not spending greater than 10% of earnings on a car. Use an to estimate the amount of monthly payments and the total amount paid. Check out resources such as Edmunds and Kelley Blue Book to see the amount you will pay for the vehicles you’re considering buying. Key takeaway
Examine your financial situation to determine without stretching your budget too far.
2. Be aware that longer terms translate to more expensive car is rising. It’s not hard to find a loan lasting six to seven years however they do have a significant downside. A longer loan period does result in that you pay less monthlywhich can be beneficial when you’re on a tight budget -however it will result in higher interest rates overall. Even if you purchase an inexpensive vehicle and you are able to get it, you could soon be in debt, or pay more than the car is worth. When you take out that first car loan opt for the most short-term term you can afford every month. It could mean you need cut back on other areas, but it’s by far the safest choice to protect yourself from having to pay more for your car than what it’s worth. Key takeaway
You’ll probably save money on interest rates by choosing a short loan duration and reduce the possibility of being upside down on your car loan.
3. Examine the credit score and report. credit rating is one of the main factor lenders consider when determining the interest rate. In order to get a fair rate, you must have an excellent credit score. Additionally, you will need a history of on-time payments. If you’ve not had the chance to build your credit score or history, you’ll have a harder time finding a good deal. There may be a need to apply the car loan, which will mean an interest rate that is higher. But if you can wait for your vehicle loan make sure you establish a track record of timely payments. A lower ratio of debt to income indicates to lenders that you are able to manage your financial situation. Paint a good financial picture for lenders to get a good deal. Take away
Improve your credit score before applying for an attractive interest rate in an auto loan.
4. Choose with more than one lender Ccomparing lenders is just as critical as comparing cars for a great deal. The types of lenders you can choose from include: If you have a poor or no credit history, you might be eligible for a first-time car buyer’s loan by local credit unions. You’ll have to be a credit union member in order to qualify for loans, so inquire about the best ways to join before proceeding. Large banks: Customers with an established connection to a conventional bank may qualify for an auto loan. As a first-time buyer you could be charged higher rates. The online lenders typically have less strict eligibility requirements than traditional banks. This is good news if you lack credit history or have a high score, however, you may expect a higher rate of interest to offset any risk to the lender. Marketplace lending: The online platforms have a vast network of lenders. The application you submit is shared with the community so that you can view potential loan offers with lenders who could be a good match. Capitalist lenders could also secure financing through a , or the finance company that is part of the auto manufacturer. They often feature auto loan programs for current students as well as recent graduates of college. Every lender has different rates and ways of determining who is eligible for what terms. It is crucial to compare rates and make an application with a variety of lenders. This will allow you to determine what you can qualify for, how much you could spend and what you can expect to pay each month. Key takeaway
Doing some research will help ensure that that you receive the top deal on an auto loan.
5. Get preapproved Shopping around has an added benefit that is it could end up in a period that can last as long as 30 days. If you apply for preapproval, the lender will issue an informal inquiry that doesn’t affect the credit rating of yours. You’ll be able to visit dealers and test vehicles without the pressure of needing to secure financing. Preapproval gives you the upper hand in negotiations. Dealer financing is typically expensive since dealers mark up their rates in order to gain a profit. If you visit the dealership with a preapproval document and a preapproval letter, you might be in a position to negotiate a great price on financing in-houseshould that be the way you’d like to go. Some dealers will also provide the choice between or low-interest financing. If you’ve already achieved unbeatable rates with another lender the option is simple: reward yourself by recouping the cost. What’s the most important takeaway
Preapproval helps you narrow down the pool of lenders and also reduces the impact on your credit score.
6. Choose between used, new or leased Lenders offer different rates on automotive loans for . Lessors have their own method of calculating the monthly payment — called the factor rate and you should investigate the factor rate prior to taking this decision. If you’re planning on purchasing the latest model, be aware that they generally offer lower rates across all levels. However, newer cars are also more expensive and are likely to decrease in value more quickly due to depreciation. Thus, although you might be paying more on a used vehicle however, you could still save cash. The most important thing to remember
New cars typically come with more affordable loan terms than used cars However, the total cost will be higher.
7. Look for specials from the manufacturer. Most manufacturers offer first-time car buyer programs. Many offer incentives special deals for students in college and recent grads. If you’re planning on purchasing a car for the first time with a good income as well as credit score to back it up and want in-house financing it is sensible to see if you can make a profit. Manufacturers may also offer rebates and special leases for new models. Be on the lookout for these. You’ll be limited to what you can buy and the way you pay for it. If you have a clear picture of what you’re looking for and excellent credit, manufacturer specials could make a difference on the cost of your first auto loan. The most important thing to remember
Check with the dealer to find out if you qualify for financing incentives if you’re buying a brand new vehicle.
8. Utilize a co-signer, or co-borrower. If you don’t have stellar credit, you might have a chance be able to get a great deal. The lender will look at both credit scores when deciding whether to finance your car. The vehicle will become responsible for the loan when you fail to pay on time. However, a co-borrower has ownership of the vehicle and shares the responsibility in your loan together with the borrower. Regardless of which you select the person to co-borrow with, they should have excellent or good credit and consistent source of income that meets the lender’s minimum requirements for approval. What’s the most important takeaway
Co-signers or co-borrowers can strengthen your approval odds and help you get a better deal on a car loan.
9. Make a large down payment Once you know the amount you’ll need starting with a minimum of 20% of the car’s total cost. If you’re unable to afford this amount, aim for a down payment of minimum 10%- or whatever you can afford. Use Bankrate’s calculator to determine a figure that works for you. It’s tempting to purchase the most expensive car for first-time car buyers, but all first-time car buyers — and every car buyer must make a down payment to lower the amount they have to finance. A higher down payment increases the chances of getting a favorable interest rate, and also lowers your monthly payment and shrinks the amount of interest you’ll be paying throughout the loan’s duration. The most important thing to remember is
A larger down payment could make you eligible to get better loan conditions, and your monthly payment will be more affordable.
The next step to finding a fair rate for your first auto loan is to stay in the game and compare. You can walk away with an affordable rate by comparing lenders, saving up on a down payment, and working on the credit rating. Learn more
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Written by
Allison Martin’s work started over 10 years ago as a digital media strategist. Since then, she’s been published in several leading 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 values transparent reporting that allows readers to successfully land deals and make the most appropriate choices regarding their finances. He is a specialist in auto and small business loans.
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