Getting the Best Car Loan Rates – Our 5 Top Tips
Finding the best car loan rates can be a struggle. Depending on your financial situation, it might seem like buying a vehicle is out of reach. Even if you have the money for a monthly payment, you don’t want to spend an arm and a leg on interest.
Remember when considering your budget that you need to plan for more than the monthly payment. There will be sales tax added to the cost of the vehicle and ongoing maintenance and insurance expenses to consider.
Here at Peters Auto Mall, we are dedicated to helping you find the best car at the best price. We want you to drive away knowing that the car you just purchased is the perfect vehicle for you and your family. Better still, we want you sign on the dotted line knowing that you’re getting the best rate without the payment being a burden each month. Our financing team wants to get you the best repayment terms. Therefore, we’ve compiled a list of the tip five ways you can get the best rate on your next car loan.
What are “Car Loan Rates” and Why Does It Matter?
Before we give you our rate tips, it’s important to understand what a loan rate is and why it matters. If you’re new to buying a car, don’t worry; we’ll walk you through the process step by step. The Peters Auto Mall team wants you to make the best car-buying decision possible. To do that, you have to understand the process.
If you’re like most people, you probably cannot pay for your next vehicle out of pocket. Instead, you’ll pay using a car loan and will make monthly payments to a lender. Car loans can come from a credit union, bank, or other lenders. They make money by charging you interest every month. When you have a car loan, the interest you’ll pay is calculated as a percentage of the total loan you are financing. The lower the rate, the less you’ll pay over the loan term. Your credit score is an important factor in determining your rate.
Remember when considering your budget that you need to plan for more than the monthly payment. There will be sales tax added to the cost of the vehicle and maintenance and insurance expenses to consider.
The car loan rate offered can vary from lender to lender. Essentially, lenders look at your credit report, income, and other factors to determine the likelihood that you’ll default. (To “default” on a loan means that you stop making your monthly payments.) The riskier you are, the higher your interest rate will be. Remember, these lenders typically don’t meet you or get to know you. They simply look at how risky you seem on paper. If you want a lower interest rate, it’s all about becoming a less risky investment.
How can you do that? Here are our top five tips!
Check your Credit Report for Errors-They Could Affect Your Credit Score
To start, look at your credit report to see if there are any errors. You’ll never know about errors unless you look for them, but they can have a drastic effect on your life. Errors can happen in many different ways:
- You might have the same name as someone who lives nearby, is the same age, or has other similarities. Their financial decisions could be appearing on your credit report. This is especially common if you have the same name as your parent.
- One of your current lenders could report information incorrectly. Often, a credit union or bank may enter data by hand, leading to human error. Even if you clear up an error with the company itself, it might still appear incorrectly on your report.
- Information from an ex-spouse might be showing up on your credit history report. Keep in mind that financial decisions you made when married rightfully could show up on your report. However, after a divorce, financial decisions should be made based on your current status.
- The credit bureau might be pulling incorrect information. This can happen with just a single number entered incorrectly. For example, they might be pulling information for someone whose social security is one number different from yours.
- Someone may have stolen your identity. Identity theft takes on many forms. It isn’t always the result of a hacker figuring out your bank password. Often, identity theft happens when someone close to you uses your information without permission. For example, a child may use your information to open a credit card. Or, a sibling may forge your name as a co-signer on a loan. Of course, we do not like to think about a family member taking advantage of us, but it happens.
If you see any problems with your credit report, work to fix the error immediately. You don’t want to be punished with a lower rate due to a lower credit score than you deserve. Unfortunately, this can be a long process. Start by informing the credit bureau that there is an error. Then, inform the lender or creditor in question. You have rights! The Fair Credit Reporting Act (FCRA) protects you from credit reporting errors. The sooner you start the process of repairing errors, the better.
Clean Up Your Credit Score
Once you’ve checked your credit report to look for errors, turn your attention to other credit issues. No one is perfect. However, lenders do judge us based on our past mistakes. Poor financial decisions can stay on your credit report for seven years.
Here’s the good news: all is not lost! Yes, you can repair your credit, even if you’ve made poor financial decisions in the past.
Start by getting up to date on any currently late payments. If you’re struggling to make a payment, call the company to ask for help. Many lenders will give you a few months to get back on track or will work out a better payment plan. You may also be able to negotiate a lower interest rate, which will lower your monthly payment. At the very least, it is worth asking. The worst they can say is no.
You may also wish to work with a company to consolidate your debt. This allows you to make a single monthly payment. Often, they can negotiate a better deal as well. If you have multiple credit cards and loans at high interest rates, this may be your best option.
Does your credit report look clean but empty? Believe it or not, one big issue with credit might be your lack of credit history. Sure, you don’t have any late payments on your report. However, you also haven’t demonstrated your ability to make payments on time. So, you can benefit from having a credit card or other account in your name. Remember to pay off your balance on time every month to build good credit and avoid paying interest.
Pay More as a Down Payment
One of the best ways to get a lower car loan rates is to pay more upfront. It may pay to withdraw some cash from your savings account to help. When you have a bigger down payment, you have lower loan amounts. So, you become a less risky option for lenders. They also know that you have more of your own money paid toward the vehicle, so you are less likely to default.
But what if you don’t have more money for a down payment? We can help!
We have an easy process to accept trade-in vehicles. Here at Peters Auto Mall, we have on-site appraisers ready to evaluate your vehicle. Simply stop by our lot. The appraisal takes about 20 minutes, as we look at your car’s condition and take it for a test drive.
After we inspect your car, you have a week to consider our offer. By all means, use this time to shop around. We’re confident that we can give you the best offer (and if we can’t, you should sell it to someone else). Either way, trading your car in is a safer and faster way to turn it into cash. Trying to sell it on your own means advertising, waiting for responses, meeting with strangers and having them test drive your car. These are all risky and time-consuming activities.
Regardless of whether you sell your vehicle to us or someone else, you can use that money for a down payment. By having this larger down payment, you’ll be more attractive to lenders.
Consider a Co-signer
You may be able to get a lower interest rate if you have a co-signer for your auto loan. A co-signer is someone who is not going to be the primary owner of the car. However, they are agreeing to take responsibility for the car payments. If you do not make the payments, they will step in to make them.
This is not a decision to take lightly. The other person is taking a financial risk by co-signing the loan. In other words, if you default on the loan, the lender could go after them for the money. Never co-sign a loan unless you 100% trust the other person!
A co-signer lowers the risk for the lender, so they do often negotiate a lower rate in these cases. It is especially beneficial if your co-signer has excellent credit. Again, it is important to keep in mind that you are tying your loan to their credit. Only ask someone to co-sign if you are sure that you can commit to making good financial decisions.
On the topic of co-signing, if you are buying a car for your family, your spouse might be a good co-signer. Often, owning a car together and being mutually responsible for a loan can help you get a lower rate. On the other hand, you may want to put a car in just one name. If one of you has better credit than the other, it can hurt your interest rate if you apply for the loan together.
Pay More Per Month
When you apply for an auto loan, your interest rate isn’t the only thing that matters. Instead of looking at the big picture (i.e., the total amount of your loan), think about your monthly payments. You want to ensure that you can budget to make these payments on time every month.
When possible, pay off your car loan faster. Most auto loans range from two to five years. Ask for a lower rate if you pay it off sooner, as long as you’re certain you are not overextending yourself.
If you’re not sure, you can go for the longer loan at a higher rate, but pay off more when you can. This will still allow you to save money on interest. However, you’ll only be committing to paying the smaller monthly rate in case you can’t pay more every month. It’s a great win-win situation.
Bonus Tip: Get a Better Car Deal
By far, the best way to get a better interest rate is to ask for a smaller loan. The higher the loan, the riskier you are to the lender.
Here at Peters Auto Mall, we can help you get a better deal on the car you really want. It’s one of the best reasons to purchase a pre-owned car. The purchase price is lower than a new car and you can afford a more luxurious vehicle. Our lots have hundreds of options, including some cars that are just one or two model years old. In fact, we have many cars with less than 30,000 miles.
When you compare the cost of a used car to a new car, it’s no competition. Since you’ll need a lower amount to buy the used car, you can negotiate a lower interest rate.
Even if you are looking exclusively at used cars, there are a few ways to get a better deal:
- Shop during peak new-car-buying seasons. When the new model years hit the dealerships and during holiday sales, many people are buying new. This means there will be an influx of used cars available. Since lots get crowded, you can get a better deal in many cases.
- Remember to test drive cars before you make a decision. A car you weren’t initially considering might pleasantly surprise you. Sometimes, the most expensive car on the lot is not the right car for you.
- Think about comparable vehicles. Often, there is a big price difference between makes and models that are very similar. If you’re not sure, ask our team! We’re happy to recommend cars that are similar, but may be slightly less expensive.
- Another bonus is that all of those luxury features and options that you couldn’t afford on a newer model year car may suddenly be affordable on a pre-owned car! You may find a car with lots of options and you won’t have to pay the large cost that the original owner had to pay when the car was new!
When in doubt, come in for a test drive! We’re happy to help you find the car of your dreams at a great price. Contact us now to set up an appointment. Or, simply stop by during our open hours to speak to a member of our team.