How to Get the Best Auto Loans Without Overpaying

Finding quotes for the cheapest auto loans should be as simple as comparing bank rates, but buying a car on credit does not work this way. Deals, steals, promotions and changing rates make it difficult. What should you know about getting the best auto loans?

Know Your Credit Score

The consumer credit score determines the interest rate a lender offers to a customer. The higher the score, the lower the cost of the credit. It is a good idea to read over the credit profile before applying for any type of credit, including a car loan. Annual Credit Report offers a free copy to each American consumer once every 12 months.

Tip: If there are mistakes, fix them before applying for a car loan - this can save thousands of dollars over the life of the loan.

Understand the Terms

New car loans generally come with 36-, 48-, 60- or 72-month terms. Used car loans frequently do not feature the 72-month option. It stands to reason that 72 months will have the lowest monthly payments but the highest cost overall. The down payment further reduces the amount of money that needs to be financed. Moreover, remember that some lender tag on an early repayment penalty; if you anticipate paying more on principal each month, this may cost you.

Tip: Before applying for a car loan, consider carefully how much you can afford to put down, pay per month on a loan and pay per month in insurance. If the target vehicle is expensive to insure, it may be necessary to go for a longer term to bring down the monthly payments.

Shop Bank Rates; Do not Forget to also Shop with Online Lenders

Getting the best auto loans requires the consumer to do a fair amount of legwork before visiting the dealership. Favorable car loan terms are not always part of the sales process. Bankrate offers consumers the opportunity to plug in the state, city and desired terms; the results are almost certain to show a wide disparity between lenders. For example, in the L.A. area, a 48-month new car loan can cost as much as $200 in fees and features interest rates between 2.99 percent and 18.35 percent.

Tip: Identify lenders that do not charge application fees.

Consider the Credit Unions

I have discovered that finding the best auto loans possible requires some branching out. For example, when shopping for a new vehicle a few years ago, the banks were offering so-so deals. One of the local credit unions, however, truly offered a much more competitive rate. Not surprisingly, I joined up and went through them. It is interesting to note that the car dealer (reputable, of course) could not match the low rate the credit union offered, even though the dealership came in right around the interest rate offered by the banks.

Tip: Shop around for loan products from other types of lenders. You may be surprised to find the best deals there. Beware, however, that you might have to open a savings account, agree to an automatic withdrawal or set up an automatic deposit.

Try a Personal Loan

If mom and dad are flush with cash, ask for a person to person loan. Draw up a legal document and faithfully make the payments. Sure, it requires a heaping helping of humble pie at the onset, but a no-interest loan is most certainly worth it.

Tip: Prove yourself with this P2P loan by paying ahead of schedule and consistently. Never ever miss even one payment or pay late.

Sources

Annual Credit Report: "Free Annual Credit Report"
Bankrate: "Compare Auto rates: Find rates in your area"