The interest rate you receive on an auto loan could either cost or save you hundreds, if not thousands, of dollars over the life of the loan. Follow these suggestions, first by knowing your credit score, then comparing different lenders and offers, to help you find the best auto loan that may be available.
Know Your Credit Score
Before you apply for an auto loan, you should first know where your credit stands. You are entitled to a free credit report every year from each of the three major credit reporting bureaus: Equifax, TransUnion, and Experian. One credit check a year will not affect your credit score.
The FICO® Score, a commonly used credit scoring model, ranges from 300 to 850. The higher your score, the better terms you can negotiate with a dealership. Before seeking an auto loan, you may be able to raise your credit score by paying off credit cards or fixing any potential errors on your credit report. Contact your credit card company directly and ask whether any late payments can be forgiven or any errors can be removed from your record. Improvements in your credit score could have a positive effect on the interest rate offered to you.
Compare Different Lenders
There are many different lending options for auto loans. The largest lenders are usually banks, such as Bank of America or Chase, and often give their existing customers affordable options to help buy a vehicle. It’s a good idea to check with your bank to see what kind of auto loan rates may be available to you.
The auto companies themselves are also big lenders, offering some of the best loans through departments such as Ford Motor Credit, Honda Finance, or Toyota Financial Services. Other potential lenders include local banks, credit unions, and small finance companies, each with varying policies. Regardless of which lender you choose, it’s a good idea to shop around before committing to a specific loan.
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Compare Offers From Different Dealerships
It might be hard to determine if you’ve been given a good offer. The offer you get from one dealer may pale in comparison to the offer from another. It’s therefore important that you take your time and compare rates to ensure you’re getting the deal you want.
An effective method to secure a better rate is to let a salesperson know you’re considering purchasing that day. This may motivate a dealer to give you its best discounts without any unnecessary delay. You can then take that offer to another dealership to use as leverage or explore whether it can be improved upon. Pitting two dealerships against each other can be a great way to get the best deal possible.
Finally, be sure to read all documents before you sign anything. Mistakes in the paperwork could end up costing you money. Make sure the numbers in the sales contract match the agreed-upon deal, and question anything unexpected.