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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 mission is to help you make smarter financial decisions by providing you with interactive tools and financial calculators as well as publishing objective and original content. This allows you to conduct research and compare information at no cost and help you make sound financial decisions. 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 deals that are displayed on this website are provided by companies that compensate us. This compensation could affect how and when products are listed on this website, for example, for example, the order in which they may be listed within the categories of listing, except where prohibited by law. Our loans, mortgage, and other products for home loans. This compensation, however, does affect the information we provide, or the reviews appear on this website. We do not cover the vast array of companies 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 work began over 10 years ago as a digital content strategist, and she’s since been featured in a variety of top financial media outlets such as 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 the end of 2022. He is a fan of the clarity of his reporting, which helps readers confidently land deals and make the best choices for their finances. He is a specialist in small business and auto loans.
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Making plans to purchase a vehicle in the beginning could be to be one some of the more stressful experiences that you can go through. With so many factors to think about when buying a car and financing, the loan can fall to the wayside. Don’t let it. Securing a requires research -and the more you 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 truthful about your budget. The main concern when you purchase a car ought to be the cost. Consider how much you’ll pay each month and the overall interest paid to . However, you must also take into account the expected maintenance, insurance and fuel all contribute to the amount you’ll spend. Experts advise not spending less than 10 percent of income on your car. Utilize an estimate tool to calculate the amount of monthly payments and the total amount paid. Then check resources like Edmunds or Kelley Blue Book to see what you could expect to pay for the vehicles you’re interested in purchasing. Key takeaway
Assess your financial situation to determine without stretching your budget too thin.
2. Keep in mind that longer terms are a higher cost The average automobile is increasing. It’s not difficult 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 for those on a tight budget -however, it also means greater interest being paid in total. Even if you purchase an inexpensive car and you are able to get it, you could soon be in debt, or pay more than what it’s worth. For that first car loan, choose the shortest period you are able to afford each month. It could mean you need to cut back in some other ways, however it’s by far the most secure option to avoid having to pay more for your car than what it’s worth. It is the most important lesson to take away
You’ll likely save a bundle in interest with a shorter loan duration, and you can minimize the possibility of being upside down on your car loan.
3. Check the credit score and report. credit score will be the most important factor lenders consider in determining your interest rate. In order to get a fair deal, you will need an excellent credit score. Also, you’ll require a track record of timely payments. If you’ve never had the chance to build your credit score and history it will be a difficult getting a bargain. You may have to use the car loan, which will mean more interest. If you’re able to put off paying on your car loan make sure you create a record of punctual payments. A lower ratio of debt to income lets lenders know that you’re able to handle your finances. Create a positive financial picture for lenders to get an excellent deal. The most important thing to remember is
Make an effort to improve your credit score prior to applying to get an interest rate that is competitive on your auto loan.
4. Choose for more than one lender Comparing lenders is the same as comparing car prices if you want a good deal. The types of lenders you can choose from include: If you have a poor to no history of credit you may be qualified for a first-time buyer’s loan by local credit unions. You’ll have to be a member of the credit union in order in order to qualify for loans So, inquire about ways to join before proceeding. Large banks: Customers with an existing association with an established bank might be eligible in the auto loan. As a first-time car buyer it is possible to pay higher rates. Online lenders: Online lenders typically offer less stringent eligibility requirements than traditional banks. This is great news in the event that you don’t have a credit history or a high score, however, you may expect a higher rate of interest to offset your risk of default posed to the lender. Marketplace lenders platforms have a vast network of lenders. The application you submit is shared with the network so you can view potential loan deals with lenders that may be a suitable match. The lenders you can use as captives: may get financing through , or the finance company belonging to the auto manufacturer. They usually offer auto loan programs for current students and recent college graduates. Every lender has different rates and ways of calculating who gets the best terms. It is crucial to shop around and get in touch with several lenders. This lets you see what you can qualify for, the amount you are able to spend, and how much you’ll be paying each month. It is a key takeaway
Shopping around helps ensure that you receive the top rate on an auto loan.
5. Preapproval is a must. an added benefit that is it could end up with a period of as long as 30 days. When you request preapproval, the lender creates an informal inquiry that doesn’t have an impact on the credit rating of yours. You’ll be able to visit dealers and drive cars without the pressure of needing to secure financing. Preapproval gives you the upper hand in negotiations. Dealer financing is usually expensive because dealers mark up their rates to earn a profit. But when you head to the dealer with a preapproval form and a preapproval letter, you might be in a position to negotiate a great deal on in-house financing, if that’s the route you want to go. Some dealers will also provide the choice between or low-interest financing. If you’ve managed to secure an unbeatable rate with another lender Your option is simple: reward yourself with a rebate. The most important thing to remember
Getting preapproved helps narrow your list of potential lenders and minimizes the effect on your credit score.
6. Make a decision between used, new or lease Lenders provide different rates on automobile loans for . Lessors have their own way to calculate the monthly installment — called the factor rate and you should study the factors prior to making this choice. If you are planning to purchase, know that new cars generally have lower rates across the board. However, new cars are also significantly more expensive and will decrease in value more quickly due to depreciation. Thus, although you might pay more interest on a used vehicle, you may still save cash. Key takeaway
New cars generally come with more affordable loan terms than used cars However, the total cost will be more expensive.
7. Check out manufacturer specials Most automakers offer first-time buyer programs. Many offer incentives to college students as well as recent graduates. If you’re thinking of purchasing a car for the first time or have the money as well as credit score to back you up, and you are looking for financing in-house is a good idea to investigate whether you can get a little money off. Manufacturers can also offer rebates and leases with special terms on new models. Be on the lookout for these. You’ll be limited in what you can buy and how you can pay for it. If you have a clear idea of what you’d like and have excellent credit, manufacturers specials could save you money on your first auto loan. Key takeaway
Contact the dealer to see whether you’re eligible for incentives on financing if you’re buying a brand new vehicle.
8. Make use of a co-signer or co-borrower If you don’t have stellar credit, a could of getting a good deal. The lender will consider the credit score of both parties when deciding whether to finance your vehicle. A loan to the vehicle, however you will be liable for the loan in the event that you are unable to pay on time. However, a co-borrower has ownership of the vehicle and equal responsibility to the loan with you. Whatever you choose to do, the individual should have excellent or good credit and a steady source of verifiable income that meets the lender’s minimum requirements to be approved. What’s the most important takeaway
Co-signers or co-borrowers can increase your chances of approval and help you get the best deal on the car loan.
9. Have a big down payment. Once you’ve figured out what you can afford to spend, start that’s at least 20% of total cost. If you can’t afford this amount, try to make a down payment of at least 10% — or whatever you can manage to afford. Use Bankrate’s calculator to determine an amount that is suitable for you. It may be tempting to get a more expensive vehicle, but first-time car buyers — and all car buyer should use a down payment to cut down on the amount they must finance. A bigger down payment can increase your chances of a good interest rate, reduces your monthly payments and decreases the amount of interest you’ll have to pay during the loan’s term. The most important thing to remember is
A bigger down payment can make you eligible for more favorable loan conditions, and your monthly installment will be less expensive.
Next steps The most important thing to do to finding a fair rate on your first car loan is to be in the game and compare. You can walk away with a competitive rate by comparing lenders, saving up on a down payment and improving building your credit. 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 published in numerous prestigious financial outlets such as 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 from late 2022. He values transparent reporting that allows readers to successfully find deals and make the best choices for their finances. He is a specialist in small business and auto loans.
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