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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 offering you financial calculators and interactive tools as well as publishing objective and original content. This allows users to conduct research and compare information for free and help you make informed financial decisions. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site come from companies who pay us. This compensation can affect the way and where products appear on the site, such as such things as the order in which they may appear within the listing categories, except where prohibited by law. Our loans, mortgage, and other products for home loans. But this compensation does not influence the content we publish or the reviews you read on this site. We do not cover the entire universe of businesses or financial offerings that could be accessible to you.
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6 minutes read. Published September 30 2022
Written by Allison Martin Written by
Allison Martin’s work began over 10 years prior to that as a digital content strategist, and she’s since been featured in a variety of top 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 since the end of 2022. He values the clarity of his reporting, which helps readers successfully land deals and make the best choices for their finances. He is a specialist in small business and auto loans.
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The process of buying a car for the first time is one of the most stressful situations that you can go through. With so many things to think about regarding the actual car to consider, the loan can fall to the wayside. Don’t let it. Finding a car requires a lot of researchand the more you do now, the better off your financial situation will be in the future. Low interest rates are the key to a car that is affordable, regardless of what you end up buying. 1. Be honest with your budget The biggest concern when purchasing a car must be the price. Weigh how much you will 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 as well as insurance and fuel costs. All factor into how much you spend. Experts recommend spending no less than 10 percent of earnings on a car. Utilize an estimate tool to calculate 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 spend on the cars you are interested in buying. The most important thing to remember is
Assess your financial situation to ensure that you’re not spreading your budget to the limit.
2. Remember that longer terms mean a higher cost The average automobile is increasing. It’s easy to locate an loan lasting six or seven years, but they do have a significant disadvantage. A longer loan period does result in a lower monthly payment — which could be helpful if you are trying to stay within your budgethowever, it also means more interest paid overall. If you decide to purchase an affordable car and you are able to get it, you could soon be , or owe more than what it’s worth. For that first car loan, choose the shortest term you can afford every month. It may mean you have to reduce your spending in some other ways, however it’s certainly the most secure choice to ensure that you don’t end up being liable for more on your vehicle than it’s worth. The most important thing to remember
It’s likely that you’ll save money in interest by choosing a shorter loan duration, and you can minimize the possibility of being upside down on your vehicle loan.
3. Check the credit score and report. credit rating is one of the main aspect that lenders look at in determining your interest rate. To get a good rate, you’ll need an excellent credit score. You will also require a history of punctual payments. If you’ve not had the opportunity to improve your credit score and track record it will be a difficult time finding a good deal. You may have to use the car loan, which will mean more interest. If you’re able to put off paying for your car loan, try to and create a record of punctual payments. A low debt-to-income ratio also lets lenders know that you’re able to handle your financial situation. Create a positive financial picture for your lenders to score an excellent deal. The most important thing to remember is
Improve your credit score prior to applying for an interest rate that is competitive on your auto loan.
4. Choose with more than one lender Ccomparing lenders is just as critical as comparing cars if you want a good deal. There are a variety of lending options to choose from. include: : If you have a poor or no credit history, you might be eligible for a first-time buyer’s program by local credit unions. You’ll need to be an active member of the credit union to apply for loans So, inquire about how to join prior to making any moves. Big banks: Consumers with an established association with an established bank may qualify in the auto loan. If you are a first-time purchaser it is possible to pay higher rates. Online lenders: Online lenders typically offer less stringent criteria for eligibility than traditional banks. This is great news in the event that you don’t have a credit history or have a good score, but you can expect a higher rate of interest to mitigate your risk of default by the lender. Marketplace lenders platforms feature an extensive network of lenders. The application you submit is shared with the network , so you are able to view possible loan offers from lenders that may be a suitable match. Captive lenders: You may get financing through , or the finance company of the auto manufacturer. They typically offer auto loan programs for current students as well as recent graduates of college. Each lender has different rates and ways to determine who will get the best terms. It is crucial to compare rates and make an application with a variety of lenders. This lets you see what you qualify for, the amount you could spend and what you will be expected to pay each month. It is a key takeaway
Doing some research will help ensure that your get the most competitive deal on an auto loan.
5. Preapproval is a must. an added benefit that it will likely end in a period that can last as long as 30 days. When you ask for preapproval the lender generates a soft inquiry that won’t affect your score on credit. You’ll be able for a visit to dealers as well as automobiles without the stress of securing financing. Getting preapproved gives you the upper hand in negotiations. Dealer financing can be costly because dealers mark up their rates in order to gain profits. If you visit the lot with a preapproval document, you may be able to negotiate a good deal on in-house financing- if that is the way you’d like to pursue. Some dealers will also provide the option of either low-interest or financing. If you have already been able to get the best rates from another lender Your choice is clear: Reward yourself by recouping the cost. The most important thing to remember
Being preapproved can help narrow the pool of lenders and also reduces the effect on your credit score.
6. Choose between used, new or leased Lenders offer different rates on automobile loans for . Lessors have their own method to calculate the monthly installment known as the factor rate and it is important to investigate the factor rate prior to making this choice. If you are planning to purchase the latest model, be aware that they typically offer lower rates across board. However, new cars are also significantly more expensive and decrease in value more quickly due to depreciation. Therefore, even though you’ll be paying more on used cars but you can still save money. What’s the most important takeaway
New vehicles generally have more affordable loan terms than used cars However, the total cost will be more expensive.
7. Check out manufacturer specials Most manufacturers offer first-time car buyer programs. Some offer discounts special deals for students in college and recent grads. If you’re thinking of purchasing a car for the first time with a good income or credit that can back you up and want in-house financing it is sensible to investigate whether you can make a profit. Manufacturers can 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 amount you can spend it. However, if you have a clear picture of what you’d like and have excellent credit, manufacturers offers can make a difference on the cost of the first car loan. The most important thing to remember
Check with the dealer to find out whether you are eligible for financing incentives if you’re buying a brand new vehicle.
8. Use a co-signer or co-borrower If you don’t have stellar credit, a could be able to get a great deal. The lender will take into consideration both credit scores when deciding if they want to finance your car. The vehicle will become responsible for the loan in the event that you are unable to make timely payments. But, a co-borrower has ownership of the vehicle and is equally responsible for your loan along with your. No matter which option you pick the person you choose to borrow from, they must have good or excellent credit and an ongoing source of reliable income that is sufficient to meet the lender’s minimum threshold 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 a car loan.
9. Have a big down payment Once you know what you can afford to spend to start, make sure it’s at least 20% of vehicle’s total cost. If you’re unable to afford this amount, try to make a down payment of minimum 10%or whatever you are able to manage to afford. Consider using Bankrate’s to find a figure that works for you. It may be tempting to buy a more expensive car for first-time car buyers, but all first-time car buyers — as well as every car buyer must make a down payment to lower the amount they have to finance. A larger down payment improves the chances of getting a favorable interest rate, reduces the amount you pay each month and reduces the interest you’ll pay throughout the loan’s duration. Key takeaway
A higher down payment may make you eligible for more favorable loan conditions, and your monthly installment will be less expensive.
Next steps The key to finding a fair rate for your first auto loan is to stay open to shopping around and be patient. You can get a competitive rate by comparing lenders, making on a down payment, and working on building your credit. Find out more
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Written by
Allison Martin’s work began over 10 years prior to that as a digital content 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 the end of 2022. He believes in the clarity of his reporting, which helps readers easily find deals and make the most appropriate choices regarding their finances. He specializes in auto and small business loans.
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