Numerous auto financing options are available to car buyers. But if looking for the best finance package on your new vehicle purchase, do your research and learn techniques that can help you secure the lowest finance rate. Paying a low finance rate on the car results in a lower car payment.
Credit History
Taking a look at your credit history first is one key way to get the best auto financing option. Various lenders are available to finance your car purchase, and some will accept your application with a low credit score. This doesn't guarantee the lowest interest rate and car payment. Check your personal report from AnnualCreditReport.com and consider purchasing your credit score from myfico.com. Aim for a credit score of 700 or higher to get the cheaper rate on the vehicle loan. Tips to improve your score might include a history of timely bill payments and lowering credit card debt.
Benefits of a Reduced Term
Some car buyers may shy away from a reduced auto loan term due to the increase in monthly payment. But benefits to opting for a shorter term include paying less interest on an auto loan, paying off the car sooner, and some auto finance companies assign lower interest rates with reduced terms. A reduced term can include a three- or four-year auto loan, as opposed to a 60- or 72-month term.
Down Payment
If you can afford a 10 or 20 percent (or higher) down payment on your next vehicle purchase, consider purchasing with a down payment. A down payment decreases the amount you will need to finance with an auto lender, reducing your monthly payments. Plus, down payments help bring down the interest rate on the car loan, further reducing how much you spend in interest charges over the life of the auto loan.
Cosigner
No credit history or a bad credit history is practically an invitation for higher interest rates on an auto loan. But if applying with a cosigner (someone with good credit who signs the loan documents), you may qualify for a better interest rate on the loan.
Loan Shopping
Don't take the first offer you receive without first comparing this option to other financing packages. Get a quote from the dealership's finance team, and then request an auto loan quote from your personal bank or credit union to compare the rate and terms. Consider getting preapproved for an auto loan with your bank before talking with a dealership. This way, you know what you can afford to spend in advance.
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