Low-rate auto loans are the best way to save on a new car, but there are a few things you should know about these loans. Unfortunately, only a small percentage of car buyers will qualify for the best rates, and many car buyers enter the process without knowing how to qualify for the best loan. Don’t get caught off guard. Here are seven things you should know about low-rate auto loans.
1. The Lowest Rate Isn’t Always at the Dealership
If you’re looking for low-rate auto loans, don’t think the dealership will offer the best rate. The dealership can help with financing, but if you’re interested in getting the best loan rate, you need to talk to your local bank or credit union. The rate the dealership quotes might be low, but in all likelihood, the dealership has padded the interest rate to make a small profit. Go to a bank or credit union and you’ll cut out the middleman.
2. The Longer the Term, the More You Will Pay
You may be excited to learn that you qualify for a low rate. Just know that if you extend your loan term for more than 60 months, this will negate any savings. To benefit the most from a low-rate auto loan, you need to select a shorter term - preferably 36 or 48 months.
3. Build a Credit Score before Shopping
Having no credit history can be just as bad as having a low credit score. If you want a low-rate auto loan, banks will not offer the best financing if they can’t judge your creditworthiness. Before buying a new car, make sure you establish a credit history. Apply for a secured credit card or a retail credit card and make timely payments. After 6 to 12 months of on-time payments under your belt, you’re in a better position to get an auto loan.
4. 0% Interest is for the Best Credit Scores
Don’t get excited about commercials offering 0% interest on auto loans. This low rate is available, but only to applicants with the highest credit scores – typically 780 - 800 or higher. If you have your heart set on 0% interest, make sure you pay your bills on time every month and work to pay down your consumer debt. Both moves are credit score boosters.
5. A down Payment is Helpful
Not required, but certainly helpful. When negotiating a lower rate on your auto loan, cash talks. And the best part is, you don’t need a large down payment. As little as 20% down can help you negotiate a cheaper interest rate; that’s $4,000 on a $20,000 automobile. Not only do you get a lower interest rate, but you reduce how much you need to finance.
6. Newer Cars Have the Best Rate
If you’re shopping around for a used automobile, don’t expect to get the lowest rate on the car. Here’s the thing, banks and dealerships typically offer the best interest rates on new cars. The newer the car, the better the rate.
7. A Cosigner Can Make a Difference
Finding someone to cosign your auto loan is much easier to say than do. But if you have a low credit score or no credit score, getting your parent or maybe a sibling to cosign your auto loan can help you snag a better rate. This is because banks use the average of both credit scores to determine rates. For this to work, the cosigner needs a superb rating – at least 780.
So, do you feel that you’re ready to go out and negotiate a low-rate auto loan? With a low rate you’ll not only save cash on your next purchase, but enjoy greater purchasing power. Which tip do you feel may work the best?