Tips to Snag the Best Car Loan

You just saw a hot set of wheels at the neigborhood dealership...and you have to have 'em! The only challenge is paying for the car. Unless you have cash in hand, you’ll need some type of auto loan. Follow these six steps to an auto loan and you will ride around knowing you got the best deal.

Step #1: Manage Your Credit

One of the first things you should do before applying for an auto loan is review your credit. All US consumers are entitled to a free credit report, so use this resource. One of the best credit reporting resources is AnnualCreditReport.com. Find out if there’s anything you need to fix. Any errors or bad habits could affect your auto loan rate.

Step #2: Know How Much You Can Spend

Diligent budgeters already know this, but I don’t run into very many diligent budgeters. Track your budget any way you like (Microsoft Money is a good tool or build your own system), and then find out how much your payments might be with the car payment calculator. Caution: your lender may tell you how large a loan you qualify for, since they want to earn interest on the highest loan possible. Instead, be smart and figure out the largest loan you can afford.

Step #3: Look at the Big Picture

The terms of your auto loan will determine how much you pay now and how much the auto loan costs overall. Remember that a low cost now may not mean low total costs for you in the big picture. To view competitive rates, you can simply refer to the Best Cash Cow auto loan rates at https://www.bestcashcow.com/auto-loan-rates.

For example, most borrowers choose a low down payment because it’s easy to manage today. However, that choice increases the total cost of your auto loan and usually leaves you ‘upside-down’ (meaning you owe more on the vehicle than it’s worth) for years to come.

You get an upside down loan when the item loses value faster than the loan balance decreases. For example, a brand new car might cost $25,000. A few years later it might only be worth $15,000. If you owe more than $15,000 on the loan, you have an upside down loan. You’ll have to write a check to sell the thing, or keep paying for it after it’s worthless.

Step #4: Consider Insurance
When you ask various lenders what they’ll offer you, you may find that you need insurance to get the best auto loans. I’m referring to disability insurance and life insurance at this point. The lender is concerned that something could happen to you and you wouldn’t be able to pay them back.

Having insurance might not be a requirement, however you should know all the details if you already are insured.

Step #5: Shop Around

This is simple but it is often overlooked. Your best negotiating tactic is your ability to say "no" and continue shopping around! The most important point here is that you don’t have to get your auto loan from the dealership. Check with a credit union, bank, online lender, or P2P lending source. In most cases your car dealer won’t have the best auto loan. By consulting with an alternate lender before stepping onto the lot, you’ll be armed with knowledge of what’s fair -- and you may have some bargaining power.

Step #6: Avoid Prepayment Penalties

Things change in life and flexibility is important. Your auto loan should also be flexible. Find a lender that will allow you to make extra payments or pay off the loan entirely without any penalties. If a lender does not allow prepayments, then simply walk away. It’s important to read the fine print – some penalties aren’t called “penalties”.