While public transportation and rideshare options like Uber are on the rise, statistics show that 91% of American households own at least one car. Everyone needs to buy a car eventually, but the majority of us are unable to purchase without financing it through a loan. However, finding the best auto loan available can be a very daunting task.
So, what can you do to avoid the pitfalls of high-interest rates and fees? A lot, actually. Here are 5 major tips to help you secure a great auto loan for your new vehicle.
1. Your Credit Counts
It’s common knowledge that a good credit score goes a long way in helping you to obtain the best loans available, but checking your credit score can lower your number and cost you a pretty penny at the same time. Luckily, sites like Credit Karma are popping up all over the internet. With these incredibly helpful tools, you’ll know exactly where you stand before even contacting a lender.
If your FICO score could use a little boost, paying off existing loans and any outstanding bills is the perfect solution. Even a small increase can make all the difference in opening up new loan opportunities. Knowing your score is the first step in putting yourself in charge of your auto loan.
2. Know The Differences
[pullquote]You will more than likely have the option of choosing between a fixed or variable monthly rate.[/pullquote] While the lower initial rate of variable rate financing is tempting, it is wise to avoid this option. The interest rate often increases right away, and a longer term can cause you to end up paying a whole lot more than you initially bargained for.
On the other hand, following these tips can help you lock in a reasonable rate for a fixed loan. That way you will never have to worry about the fluctuation in your payments. It will always be the same every month until the end of your term.
3. Short Or Long Term?
This option relies heavily on your monthly budget, but if you can afford to pay more each month then it is highly recommended to opt for a shorter term. The amount of interest paid is significantly decreased, sometimes by thousands of dollars, and your credit will gain a positive boost much faster.
4. Shop Around
Often times, the dealership’s car loans are marked up, and far from the best deal, you could get. Shop around at credit unions, loan companies, and banks to find something more reasonable. Always make sure to check into the lender’s reputation beforehand via the Better Business Bureau, state, and federal agencies.
You’ll be able to negotiate a better deal, and you’ll be able to tell when the lender is pitching less than what you deserve after checking your credit score.
5. Take Deals When You Can
You might have the chance to receive a lower interest rate for things like paying online or signing up for automatic payments. Sometimes they may give you a discount for buying a specific type of car or having done business with them in the past. Always ask to find out what deals are available to help save you some cash.
You can sweeten your deal by excluding extras in your loan like upgraded security systems, rust protection, and extended warranties. If you can pay for the add-ons you need separately. Factoring these things into a car loan will cause the buyer to pay far more for them than they are actually worth.
Knowing what you want, and what is available beforehand will give you the confidence you need to get out there and find the best loan possible. Follow these tips and you’ll never find yourself trapped in an unfavorable loan again.