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9 tips to get a good deal on your first auto loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by providing you with financial calculators and interactive tools, publishing original and objective content. This allows users to conduct research and compare information at no cost to help you make informed financial decisions. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this website are provided by companies that pay us. This compensation can affect the way and where products appear on this website, for example for instance, the order in which they appear in the listing categories, except where prohibited by law for our loans, mortgage,, and other products that lend money to homeowners. This compensation, however, does have no impact on the information we publish, or the reviews that appear on this website. We do not cover the vast array of companies or financial deals that may be open to you.
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6 minutes read. Published September 30, 2022
Written by Allison Martin Written by
Allison Martin’s work began over 10 years ago as a digital content strategist, and she’s since been published in several leading financial media outlets including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.
Edited by Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate since late 2022. He believes in the clarity of his reporting, which helps readers successfully get deals and make best choices for their finances. He is a specialist in small and auto loans.
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The process of buying a car to the very first time could be one some of the more stressful events that you can go through. With so many factors to consider about the actual car to consider, the loan could fall by the side. Don’t let it. Finding a car requires a lot of researchhowever, the more research you can do now you do, the better off your finances will be later. An interest-free rate can be the key to a low-cost car no matter what you end up buying. 1. Be honest with your budget. The main concern when purchasing a car must be the cost. Be aware of the amount you pay each month and the total interest that you will pay to . But you should also consider the maintenance costs you expect to pay for of the vehicle, fuel and insurance all are a factor in how much you’ll spend. Experts recommend spending no less than 10 percent of earnings on a car. Use an to estimate the monthly installments and total interest paid. You can then look up resources such as Edmunds and Kelley Blue Book to see what you can expect to pay for the vehicles you’re interested in purchasing. What you should take away from this is
Assess your financial situation to decide if you are not stretching your budget to the limit.
2. Be aware that longer terms translate to an increase in cost. The price of a vehicle is increasing. It’s easy to find a loan lasting six or seven years, but they have a major downside. A longer loan period does result in that you pay less monthlywhich can be beneficial when you’re trying to stay within your budgethowever, it also means more interest paid overall. If you decide to purchase an affordable car and you are able to get it, you could soon be in debt, or pay more than what it’s worth. When you take out the first time you take out a car loan, choose the shortest term you can afford every month. It may mean you have to reduce your spending in different areas but it’s certainly the most secure choice to protect yourself from having to pay more for your car than it is worth. It is the most important lesson to take away
You’ll probably save money on interest rates by choosing a short loan duration as well as reduce the possibility of being upside down on your car loan.
3. Review your score on credit reports and credit scores. Your credit score will be the most important aspect that lenders look at when determining your interest rate. To get a good rate, you’ll need good credit. Also, you’ll require a history of punctual payments. If you’ve not been able to establish your credit score and history it will be a difficult getting a bargain. You may have to use — which means an interest rate that is higher. However, if you are able to wait on your car loan, try to and establish a track record of timely payments. A low ratio of debt to income shows lenders you can handle your finances. Make a strong financial case for your lenders to score an attractive deal. Take away
Work on improving your credit score before applying to get an interest rate that is competitive on your auto loan.
4. Shop with more than one lender Ccomparing lenders is just as critical as comparing cars for a great deal. There are a variety of lending options to choose from. include: : If you have very little to no history of credit you could be qualified for a first-time buyer’s program through a local credit union. You’ll need to be a credit union member to be able to apply for loans, so inquire about the best ways to join before proceeding. Big banks: Consumers with an existing association with an established institution may be eligible for an auto loan. As a first-time car buyer, you may face higher interest rates. Online lenders: Online lenders typically offer less stringent qualifications as compared to traditional lenders. This is great news in the event that you don’t have a credit history or have a good score, however you should anticipate a higher interest rate to mitigate the risk of default for the lender. Marketplace lending: The online platforms feature an extensive network of lenders. The application you submit is shared with the network , so you can see potential loan offers with lenders who could be a good match. The lenders you can use as captives: could get financing through , or the finance company that is part of the auto maker. They usually offer auto loan programs specifically for currently enrolled students as well as recent graduates of college. Every lender offers different rates and ways of determining who is eligible for what terms. It is crucial to shop around and get in touch with several lenders. This allows you to see what you can qualify for, the amount you can spend and what you’ll be paying each month. Key takeaway
Shopping around can help your get the most competitive deal on an auto loan.
5. Get preapproved Shopping around has another benefit: It likely ends in a period that can last for up to 30 days. When you ask for preapproval the lender creates a soft inquiry that won’t have an impact on your score on credit. It gives you time for a visit to dealers as well as test drive cars without the pressure of needing to secure financing. Being preapproved gives you an advantage in negotiations. Dealer financing is usually expensive since dealers mark up their rates in order to earn profits. If you visit the lot with a preapproval form that you have signed, you could be able to negotiate a good price on financing in-house- if that is your preferred route to take. Some dealers will also provide the option of either low-interest or financing. If you’ve been able to get unbeatable rates with another lender, your choice is clear: Reward yourself with a rebate. The most important thing to remember
Getting preapproved helps narrow your list of potential lenders and also reduces the impact to your credit scores.
6. Choose between used, new or leased Lenders have different rates for auto loans for . Lessors use their own method of calculating the monthly payment — called the factor rate — and you must investigate the factor rate prior to taking this decision. If you plan on buying it, remember that new cars typically offer lower rates across spectrum. However, newer cars are also significantly more expensive and will lose value faster through depreciation. Thus, although you might pay more interest on a used vehicle but you can still save money. What’s the most important takeaway
New cars typically come with more competitive loan conditions than used vehicles however, your total cost will be higher.
7. Check out manufacturer specials Most companies offer first-time buyers programs. Some offer discounts for college students and recent grads. If you are planning on purchasing a brand new car or have the money and credit to back you up and want in-house financing, it makes sense to check if you could get a little money off. Manufacturers may also offer rebates and leases with special terms on new models. Be on the lookout for these. You will be more limited in what you can buy and the way you pay for it. However, if you have a clear idea of what you’d like and have excellent credit, manufacturers specials can make a difference on the cost of the first car loan. What you should take away from this is
Talk to the dealer to see if you qualify for financing incentives if you’re buying a new car.
8. Utilize a co-signer, or co-borrower. If you do not have stellar credit, there is a possibility of getting a bargain. The lender will consider the credit score of both parties when deciding if they want to finance your car. The vehicle will become responsible for the loan in the event that you are unable to make timely payments. A co-borrower, however, has ownership of the vehicle and equal responsibility to the loan with you. Whatever you choose to do the person you choose to borrow from, they must be able to demonstrate excellent credit and an ongoing source of reliable income that is sufficient to meet the lender’s minimum requirement for approval. The most important thing to remember is
A co-signer or co-borrower can increase your chances of approval and allow you to get a better deal on an auto loan.
9. You should have a substantial down payment. Once you’ve determined what you can afford to spend starting with a minimum of 20 percent of your total cost. If you’re unable to afford this amount, you should aim for an amount of at least 10%or whatever you are able to manage to afford. Use Bankrate’s calculator to determine an amount that is suitable for you. It may be tempting to purchase a more expensive vehicle for first-time car buyers, but all first-time car buyers — as well as every car buyer need to make a downpayment to lower the amount they have to finance. A larger down payment improves your chances of a good interest rate, lowers your monthly payment and shrinks the interest you’ll pay throughout the loan’s duration. The most important thing to remember is
A larger down payment could be eligible for more favorable loan conditions, and your monthly installment will be lower.
Next steps The key to finding a fair rate for your first auto loan is to remain patient and shop around. You can get the best rate when you compare lenders, putting aside the cost of a downpayment and improving your credit score. Learn more
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Written by
Allison Martin’s work began over 10 years prior to that as a digital content strategist. Since then, she’s been published in several leading financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.
Editor: Helen Wilbers Edited by
Helen Wilbers has been editing for Bankrate since late 2022. He is a fan of clear reporting that helps readers confidently get deals and make best choices for their finances. He specializes in small and auto loans.
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