Five Tips to Consider When Seeking A Car Loan
It’s not just about the cost of the vehicle when you’re buying a car. That’s a big part of it, of course, but just as important is getting a good deal on your car loan.
The important thing to remember is to do your homework. Combining your own research with these following tips can help you negotiate the most favorable loan.
1. Shop Your Loan Separately
Begin the loan application process even before you choose the exact car and begin negotiating the best price. This means shopping loans with credit unions, banks and online lenders. In many cases, online banks have had the best loan rates, while smaller banks can also be very competitive. Meanwhile, credit unions tend to come in even lower than many banks.
2. Check Your Credit Reports
Make sure to get a credit report from the three major credit reporting agencies – Experian, Equifax and TransUnion. Because you don’t know which report the lender will use, you’ll want to give yourself time to clean up any mistakes on all three reports. It also doesn’t hurt to check your credit scores – through sites such as CreditKarma, to give yourself an idea where you stand. The good news is, with an auto loan you usually have a little more leeway with your credit score.
3. Choose a Shorter Loan
As the price of cars has gone up, car loans have gotten longer – with financing for as long as eight or nine years. The longer the loan, the lower the monthly payment, but it will also drive up your total cost in the long run. Why? Because the longer loans tend to have higher interest rates. Experts say to limit your loan to two years if possible, because that’s the optimal time to pay off a loan. Your monthly payments will be more, but you’ll get out of debt faster.
4. Rejection Isn’t a Bad Thing
Don’t despair if you’re rejected for a car loan. That rejection means that the lender didn’t think you could pay back your car loan – which in the long run may save you from getting into more debt that you can handle. This allows you to reassess your budget and determine what you can truly afford over the life of the loan, not just monthly. You may decide to buy a less expensive car, or save money for a larger down payment.
5. Limit Your Loan Shopping
While it pays to be thorough and shop around, it may be in your best interest to limit your shopping for a shorter period, like two weeks. Remember, every time you apply for a loan, whether it’s accepted or rejected, your credit score goes down. Why two weeks? Because if you submit all of your applications in a two-week period, they count as only one inquiry.