7 Steps to Get the Best Auto Loan

While being a shrewd negotiator can be helpful when buying and financing a new car, you need to do more than negotiate with a car dealer to get a good price on a car. Getting the right auto loan with the best auto loan rate is what really makes getting a new car a great deal.

How to Get an Auto Loan

Feel confident about your new set of wheels with these seven tips for how to get an auto loan:

1. Know your credit history.

   Check your credit report and scan it for accuracy. Fix any mistakes before you start car shopping. You can access your free credit report at annualcreditreport.com, which provides free copies of your credit reports from the three main consumer credit bureaus: Equifax, Experian and TransUnion.

   When it comes to your credit score, you can get those for a fee. However, check with your credit card issuer and your financial institution. These companies often provide credit scores for free. With at least a good credit score, which is one that is a minimum of 670 or higher, you have a better chance of being approved for an auto loan. The best loan rates are also offered to those with higher credit scores.

   Also, keep in mind that each time you go car shopping, apply for a loan, apply for a credit card and request a credit line increase, your credit score takes a small hit. These are all examples of hard credit inquiries. If you decide to apply for an auto loan with a few different lenders, complete your loan applications within a short period of time. When done close together, auto loan applications should only count as one inquiry, which should have very little impact on your credit score.

   
   
2. Research and comparison-shop your loan separately from your car.

   Do your homework on credit unions, traditional local and national banks, well-respected online lenders and even your auto insurance company. Find which one can offer you the best overall auto loan—including the best loan rates and lowest fees—and then begin the loan application process with that lender. Know how much of an auto loan you can afford by getting prequalified. Once you’ve negotiated the price and have a solid deal, you can then ask the dealer if they can beat the financing you have already secured.

   
   
3. Pay attention to the total auto loan amount, not the monthly payment.

   Don’t overlook the total cost of financing. Find the best all-around loan for your situation by negotiating from the total purchase price, instead of the monthly payment—you may end up paying more for your new car than originally planned while the lender makes more in interest. Keep your focus on the total loan amount, and you could save hundreds, or even thousands.

   
   
4. Use the right tools.

   The right financial tools can help you make the smartest financial decision when it comes to buying a new car. One tool definitely worth utilizing is a good auto loan calculator. It can help you analyze down payment and term options, overall monthly payment and how much interest you will pay over the life of your loan.

   
   
5. Don’t forget to read the fine print.

   Take the time to fully understand the terms of your auto loan by reading it completely. Take it home and thoroughly read it over before signing it if you have to. You want to be 100% sure that everything the lender said and promised appears in your loan paperwork. The last thing you want to find out after signing on the loan are surprise prepayment penalties, gap insurance charges or other hidden fees.

   
   
6. Beware of add-ons.

   Never accept a loan that requires the purchase of add-ons, such as extended warranties, after-market services or even auto loan insurance. Most experts will tell you that you don’t need these extras. Dealers always offer them, and if you accept and roll them into your financing, you will increase your auto loan amount but not the value of your car. If you decide you want any of these add-ons, you can usually get them at a lower cost from somewhere else. Do your research to get the best deal.

   
   
7. Investigate the lender.

   It’s always wise to do your homework before choosing a lender. Check with your state attorney general’s office, the office of consumer affairs, the Better Business Bureau and any other government agencies that regulate lenders. Then, search online for customer reviews. While these comments should betaken with the proverbial grain of salt, they can provide an early warning about possible problems, especially if you notice a trend in the feedback.
   

   In summary, when financing a new car the best advice we can give you is to walk into the lender’s office and dealership as pragmatic and prepared as possible. If you’re willing to do a little homework beforehand, you can drive away in your dream car with the best auto loan.