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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 providing you with interactive financial calculators and tools, publishing original and objective content. This allows you to conduct your own research and compare data for free — so that you can 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 products that appear on this site come from companies who pay us. This compensation can affect the way and when products are featured on this site, including for instance, the order in which they appear within the listing categories, except where prohibited by law for our mortgage, home equity, and other home lending products. However, this compensation will have no impact on the information we provide, or the reviews that you read on this site. We do not cover the entire universe of businesses or financial offerings that could be available to you.
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6 minutes read. Published September 30 2022
Written by Allison Martin Written by
Allison Martin’s career began more than 10 years ago as a digital content strategist. She’s been published in numerous prestigious 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 is a fan of transparent reporting that allows readers to easily get deals and make best decisions for their financials. He is a specialist in small and auto loans.
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Preparing to buy a car for the first time is likely to be one of the most stressful experiences that you can go through. With so many things to think about when buying a car, the loan may fall by the wayside. Don’t let it. It isn’t easy to find a loan -and the more you do now, the better off your financial situation will be in the future. An interest-free rate can be the only way to an affordable car, no matter what you end up buying. 1. Be upfront about your budget. The main concern when buying a car should be the price. Consider how much you’ll be paying each month as well as the total interest that you will pay to . You should also think about the maintenance costs you expect to pay for of the vehicle, fuel and insurance all contribute to the amount you’ll spend. Experts advise not spending less than 10 percent of income on your car. Make use of an app to estimate the monthly installments and total interest paid. Then check resources like Edmunds or Kelley Blue Book to see the amount you will spend on the cars you are interested in buying. What you should take away from this is
Assess your financial situation to determine without stretching your budget too far.
2. Be aware that longer terms translate to a higher cost The average car is rising. It’s not hard to locate an loan that lasts six or 7 years but they have a major disadvantage. A longer loan duration does mean a lower monthly payment -this could be advantageous for those on a tight budget -however, it also means greater interest being paid in total. Even if you purchase an inexpensive vehicle it is possible to quickly be in debt, or pay more than the car is worth. When you take out the first time you take out a car loan, choose the most short-term term you can afford every month. It could mean you need to cut back in other areas, but it is certainly the most secure choice to avoid having to pay more for your car than what it’s worth. Key takeaway
It’s likely that you’ll save money in interest by choosing a shorter loan time frame and reduce the chance of becoming upside down on your vehicle loan.
3. Examine the credit score and report. credit rating is one of the primary factor lenders consider when determining your interest rate. In order to get a fair rate, you’ll need an excellent credit score. Also, you’ll need a history of on-time payments. If you’ve never had the chance to build your credit score and track record, you’ll have a harder getting a bargain. You may have to use the car loan, which will mean an interest rate that is higher. But if you can wait on your car loan make sure you create a record of punctual payments. A low ratio of debt to income shows lenders you can handle your financial situation. Make a strong financial case for lenders to get an excellent deal. Key takeaway
Work on improving your credit score prior to applying to get a competitive interest rate on the auto loan.
4. Choose more than one lender Comparing lenders is as critical as comparing cars to get a fair deal. Lender types to choose among include: : If you have very little or no credit history, you could be eligible for a first-time car buyer’s loan by local credit unions. You’ll need to be a member of the credit union in order to apply for loans and other financial services, so ask about ways to join before moving forward. Big banks: Consumers with an established connection to a conventional bank may be eligible for an auto loan. As a first-time car buyer, you may face higher rates. Online lenders: Online lenders generally provide less stringent qualifications as compared to traditional lenders. This is a good thing if you lack credit history or have a high score, but you can expect a higher interest rate to mitigate the risk of default posed by the lender. Marketplace lending: The online platforms offer a wide range of lenders. Submitting an application shares it with the network so you are able to view possible 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 manufacturer of your vehicle. They often feature auto loan programs for current students as well as recent graduates of college. Every lender offers different rates and ways of calculating who gets the best terms. It is crucial to research and make an application with a variety of lenders. This will allow you to determine what you qualify for, the amount you are able to spend, and how much you can expect to pay each month. Key takeaway
Shopping around helps ensure that you receive the top price on a car loan.
5. If you’re preapproved, shopping around offers additional benefits that is it could end up with a period of for up to 30 days. If you apply for preapproval, the lender creates a soft inquiry that won’t affect your score on credit. You’ll have time for a visit to dealers as well as automobiles without the stress of needing to secure financing. Preapproval gives you the upper hand in negotiations. Dealer financing is typically costly because dealers mark up their rates in order to gain profits. But when you head to the lot with a preapproval form, you may be in a position to negotiate a great deal on in-house financing, if that’s the route you want to take. Some dealers will also provide the choice between or low-interest financing. If you’ve achieved an unbeatable rate with another lender the choice is easy: reward yourself with a discount. What’s the most important takeaway
Getting preapproved helps narrow your list of potential lenders and reduces the effect of your credit rating.
6. Decide between new, used or lease Lenders provide different rates on automotive loans for . Lessors have their own method of calculating the monthly payments which is known as the factor rate — and it is important to investigate the factor rate prior to taking this decision. If you are planning to purchase it, remember that new cars typically come with lower rates across the spectrum. However, newer cars are also more expensive and will lose value faster through depreciation. Therefore, even though you’ll be paying more on used cars, you may still save cash. Key takeaway
New vehicles generally have more attractive loan terms than used cars however, your total cost will be higher.
7. Check out manufacturer specials Most manufacturers offer first-time car buyer programs. Many offer incentives to college students as well as recent grads. If you’re thinking of purchasing a car for the first time with a good income as well as credit score to back you up, and you are looking for financing in-house is a good idea to check if you could save a few dollars. Manufacturers also offer rebates, and special leases for new models. Keep an eye out for these. You’ll be limited in the items you can purchase and how you can spend it. However, if you have a clear picture of what you want and excellent credit, manufacturer specials can save you money on your first auto loan. Key takeaway
Check with the dealer to determine if you qualify for financing incentives 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 be able to get a great deal. The lender will look at both credit scores when deciding if they want to finance your car. A to the vehicle but will become responsible for the loan in the event that you are unable to pay on time. But, a co-borrower shares ownership of the vehicle and is equally responsible to this loan along with your. Whatever you choose to do, the individual should have excellent or good credit and an ongoing source of reliable income that meets the lender’s minimum requirement to be approved. Key takeaway
A co-signer or co-borrower could strengthen your approval odds and help you get an even better rate on a car loan.
9. You should have a substantial down payment Once you know the amount you’ll need, start that’s at least 20% of the car’s total cost. If you’re not able to pay this amount, try to make a down payment of at least 10%or whatever you are able to be able to. Try Bankrate’s tool to find the right amount for you. It may be tempting to get the most expensive car however, first-time buyers — and all car purchaser need to make a downpayment to reduce the amount they must finance. A larger down payment improves your odds of getting a great interest rate, lowers your monthly payment and shrinks the amount of interest you’ll be paying during the loan’s term. Key takeaway
A larger down payment could allow you to qualify to get better loan conditions, and your monthly installment will be less expensive.
Next steps The key to securing a great deal for your first auto loan is to be patient and shop around. You can get an affordable rate by comparing lenders, putting aside a down payment and improving the credit rating. Find out more
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Written by
Allison Martin’s work began over 10 years ago as a digital content strategist. Since then, she’s been featured in a variety of top financial 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 since late 2022. He believes in clear reporting that helps readers easily get deals and make most appropriate choices regarding their finances. He specializes in small and auto loans.
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