5 Ways To Save Money on Your Car Loan
There’s nothing quite like the smell of a brand new car, and that feeling when you drive it off the lot. However, to get to that point, you’ll probably have to obtain an auto loan. By following the tips below, you’ll make this process easier, and save plenty of money.
1. Raise Your Credit Score As High As Possible
In order to enjoy the very best interest rates possible on your auto loan, you’ll need a strong credit score. How strong? Typically, the best loan terms are offered to those with a score of 750 or higher – if your score is in that range, you might be eligible for loan rates as low as 1 to 2%, or maybe, 0% (i.e. free money).
How do you go about building such a high score? First off, if you have any negative items on your credit report, remove them by use of the Fair Credit Reporting Act (we’ve reviewed how to do that before). If you have balances on your credit cards, which are above 30% of your card limit, you’ll want to reduce those balance, to boost your score. You’ll probably want to avoid opening new accounts, or applying for any new credit, in the 6 months before you apply for an auto loan. Doing so can reduce your credit score, which will lead to paying a higher interest rate.
2. Obtain A Loan Preapproval Before You Start Shopping
Once you’ve decided to purchase a new car, it is tempting to head to the dealership immediately, and start looking. When you show up at the dealership, you’ll probably be told “We offer excellent financing”, and encouraged to apply for a loan. Here’s the thing: Car dealerships rarely offer the best loan terms. Auto loans are a source of profit for car dealerships, with extra fees and points frequently tacked onto the loan by the lender, and paid to the dealership. As a result, you’ll often end up overpaying for a loan through the dealership, even if you have excellent credit. So, where should you look for an auto loan?
3. Apply For A Loan Through A Credit Union
One of the best places to shop for an auto loan, is at a credit union or a smaller bank? Why? Credit unions typically offer lower interest rates on auto loans, and provide a more user-friendly, personalized service process. It’s nice to know that the person who decides your loan is someone whom you can drop in and have a chat with. It is true that credit unions have membership restrictions; for example, you might have to work for a particular employer, be a former member of the military, or live in a certain area. However, membership rules have become less restrictive, and, given the number of credit unions out there, there’s probably one that you can join.
Matter of fact, apply and get approved by a bank or credit union first. Go through the process until you actually have a check in hand, for the dealership where you'll be buying the car. One, if not the best strategy and hack to buying a new car is obtained finance before walking into the dealer. For example, if the car you want is $41,000, give or take $1,000. Get approved with your preferred lender/bank/credit union. Call the internet fleet manager, ensure the car you want is available. Request they wash it and fill up the gas tank before your arrival. Once you arrive, test the car and once present with the "lame game" trick of introducing you to the Finance Desk Manager, present him/her with your cash (the check from your lender is even better). Let them know you're obviously serious and looking for the best deal, now, even if they have to take a loss.
This will put the bargaining chips on your table and ball on your court. Now, they're at your mercy! 9 out of 10 times, they will cave in and honor your offer. One can not beat being prepared.
4. Refinance Your Auto Loan (If You Don’t Get The Best Terms)
Sometimes, whether because of your mediocre credit score, or interest rates being high at the time, you’ll be unable to obtain the best possible terms on an auto loan. If this happens, don’t’ worry. You can sign up for an auto loan at existing rates, and attempt to refinance the loan in the future, say, a year from now. By doing so, you’ll be able to reduce your interest rate, and save money.
Of course, when you decide to refinance, you are likely extending how long you’ll have an auto loan for, so, make sure that the overall costs make sense. Simply being offered a lower interest rate and a reduced monthly payment isn’t good enough, if the time of the loan is much longer. Use Bankrate’s loan calculator to help you figure this out.
Where should you shop for an auto refinance loan? One of our favorite options is rateGenius, a nationwide auto loan refinance broker. You can also, as we’ve mentioned, check with your local credit union, to see if their offer auto refinancing options make sense.
5. Negotiate, Negotiate, Negotiate
This can’t be emphasized enough. When shopping for an auto loan, don’t go with the first option you are offered. If you apply through a credit union, find another credit union you can apply with, or perhaps, choose a local bank. Let these lenders know that you are shopping around for the best offer. As a result, they will often work harder at offering you the best rate possible. All loan applications within a 30 day period count as a single application, for FICO scoring purposes, so you don’t have to worry about lowering your credit score by applying.
The Final Word
By following these strategies, you’ll enjoy your new car even a little bit more, knowing that you saved. Drive safely, and enjoy the ride!