If you are looking to take out a car loan, be sure to look around for the best deal possible. Follow these six steps so you can find the best deal.
- Finance, then shop
- Although you save the most money by paying cash, that may not be an option for you. If that is the case, you may want to explore financing options outside of dealerships and lots. Getting preapproved at the lowest possible interest rate can help save you thousands of dollars.
- Check credit history and credit score
- The interest rate that you are offered is mainly based on your credit score so it is important to check your credit history a few months before shopping. Any errors should be corrected prior to the purchase since uncorrected errors can cost you more money in the form of higher interest on a loan.
- You can get a free copy of your credit report every year from the three major credit bureaus at AnnualCreditReport.com. However, unlike credit reports, when obtaining your credit score, you may have to pay for it since you are not guaranteed a free copy. The most widely used credit score is the FICO Score which costs $19.95 for one copy. Although, more credit card companies, banks and credit unions are offering copies to their customers by using the FICO Score Open Access program.
- Learn the importance of APR
- Loan rates are usually shown as APR or an Annual Percentage Rate. This rate includes interest and fees so shoppers can compare loans. The lower the APR, the more money you save. Using a loan calculator to compare different loan amounts, interest rates and terms can help you determine what rates are best for you.
- Avoid long-term loans
- Long-term loans have become popular over the last few years. While a longer loan has lower monthly payments, you may pay more interest the longer the loan is. It is best to keep a loan as short as you can within your means.
- Compare rates and terms
- Dealerships may be able to offer appealing financing terms but be sure to shop around to find loans to compare it to. Visit websites of banks and other financial institutions to view the rates they are offering.
- Focus on total cost
- Be aware of the entire cost of the loan, including interest, not just monthly payments. Without doing so, you will have an unrealistic idea of what the loan will cost you and can end up costing you more in the long run. To bring down the total cost of the loan, put down a larger down payment, if you are able to do so.
Be aware of your means when it comes to taking out a loan to borrow a car. Use these tips to help you find the best loan possible.