Having a car represents more than just another possession—it’s a way for you to get to school and work, a way to transport your kids to their activities every week, and the freedom to go where you want when you want. But for many people, the process of getting a new car is filled with uncertainty about whether you would be able to get a car with a payment you can afford. The interest rate has a significant impact on the total cost of your car and your monthly payments, so these simple steps to getting the best auto loan rate can help.
Calculate Total Costs
Most people look at the monthly payment to decide if they can afford a loan, and while it’s important to know that you will be able to make the monthly payments you should also consider the loan’s total cost. A common tactic used by car dealers is to extend the term of your loan (the total years and months you’re paying for the car) to reduce monthly payments. However, that increases the total amount of interest you pay so you want to take that into consideration.
You probably spent a few hours online researching your new car before you bought it—a 2015 Autotrader report indicates that people spend around 12.5 hours online before they even head out to a dealership—but how much time did you spend shopping around for the best auto loan rate? There are some misconceptions out there about auto loan rates. Some of the most common are:
• Rates are basically all the same so there’s no point to shop around
• The rate that the dealership finds you is going to be the best you can get
• The dealership has your best interest at heart
In truth, if you haven’t taken time to shop around and get pre-approved for financing you might be vulnerable to a higher interest rate than the dealer offers you, or even terms where the dealer marks up the interest rate (which could cost you several thousand dollars more over the life of the loan).
Know Where To Go
Banks and dealer financing are not the only places you can get an auto loan. Often a better rate is available from a local credit union, like Wasatch Peaks, where rates could be as much as 1 or 2 percent lower. While there are tools online where you can search for interest rates, often these will only show you large national lenders (even if you put in your zip code). A better option is to research local credit unions and contact them directly to find out what kind of interest rates are available. Credit unions only lend to their own members, but you should be able to join easily if you find one that will offer a good rate.
Know Your Credit Score
Before you start shopping around for interest rates, it’s a good idea to check your credit. This will help you identify any errors that could be dragging your score down, and if you do it far enough in advance you can take steps to increase your score if it’s low. Even a slight increase in your credit score could reduce your interest rate, saving you money.
Don’t pay more for the same car. Knowing how to get the best rate on your auto loan can help you get the best car for the best monthly payments, giving you the freedom to drive without putting a big dent in your bank account.