The negotiation process involved with buying a new or used car can be an intimidating experience for the unprepared. Certain financial numbers, like an auto loan's interest rate, can significantly impact the overall price you are required to pay for an automobile. There are several strategies you may employ when negotiating an interest rate with your dealership or bank, which can put you in the best possible position to secure a low rate.
Know Your Credit Score
Knowing your credit score, especially if your score is over 760, which is considered good credit, is a useful tool in negotiating the interest rate for an auto loan. Arming yourself with this knowledge can allow you to easily deflect a high interest rate offer from a bank or a dealership. If the dealership or bank has run your credit, they know your score is above average and are simply trying to make some extra money off of you. If you feel the interest rate is too high, get up and walk away from the deal. You may be surprised at the rate the loan officer comes back with after you get up and reach for your coat.
Consider the Down Payment
A cash down payment on an automobile is applied directly to the principle. This lowers the overall amount a bank may need to finance when you apply for an auto loan. A lower finance amount can mean a lower interest rate since the bank is taking less of a financial risk. A bank may also see a large cash down payment as a serious commitment to the purchase and may approve your loan even if you don't have an ideal credit score.
Loan Term Length
Negotiating the length of your loan term can also have an impact on your overall interest rate. If you are able to accept a loan that is repaid over five years, as opposed to six, you may secure a lower interest rate because the bank is taking less of a risk. The problem with this strategy is the monthly payments on your loan will be higher even though you're actually paying less over time.
Watch Out For Add-Ons
Watch out for dealership add-ons to the price of your vehicle like rustproofing and undercoating. These unnecessary items can jack up the overall price of your vehicle and raise your potential loan's interest rate. Being prepared to review all the documents regarding your vehicle's final price can help you request these items be removed.
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