Often, you will not have the full payment on hand when the time to get a car. Car loans exist to help you buy a vehicle through funds borrowed through a lending facility or bank. You can get a vehicle loan whether you are buying a new vehicle from the dealership, a car from a used car lot, or a used car via a private sale.
Though it can be easy just to accept whatever terms are first offered to you for financing since you are excited about your new vehicle, you can save yourself quite a bit of money if you compare vehicle loan interest rates as well as terms of repayment. And for those with bad or no credit, it’s helpful to know your lending options.
Part 1 of 4: Set a budget for your vehicle loan payments
When you purchase a car, you need to know from the start how much you are able to spend on a car.
Step 1: Know how much money you have available for your vehicle payments. Take all of your other financial obligations including rent or mortgage payments, credit card debt, phone bills, and utility payments.
Your lender may have a total debt service ratio calculation to be certain how much of your income you can spend on your vehicle payment.
Step 2: Choose a payment schedule. Determine if you want to pay weekly, bi-weekly, semi-monthly, or monthly for your car loan.
Some lenders may not offer every option.
- Tip: If you have other bill payments meant for the first of every month, you may want to pay your vehicle payment on the 15th of every month for financial flexibility.
Step 3: Know how long you want to pay for your new car. Some lenders provide options for your new or used vehicle purchase up to seven or even eight years.
The longer the term you choose, the more interest you will have to pay over the length of the term – for example, you may be qualified for a zero-interest loan for a three-year term, but a six or seven year term may be 4%.
Part 2 of 4: Know the best financing option for a new car purchase
When you purchase a new car from the dealership, you have a world of opportunities when it comes to your financing options. Discovering your way through the mix doesn’t have to be confusing.
Step 1: Ask for repayment options. Request alternative repayment terms from your salesperson or finance agent.
You’ll be presented with one or two options for your vehicle loan repayment terms, but the options may not always be the most beneficial for your situation.
Request for longer term lengths and alternate repayment schedules.
Step 2: Ask for rebates and savings. Request information about cash purchase rebates and non-subsidized loan rates.
New car loans often have a subsidized interest rate, implying the manufacturer uses a lender to offer interest rates lower than most banks can provide, even down to 0%.
Most manufacturers – particularly when it’s close to model year-end – offer large cash purchase incentives to buyers, enticing them to buy their product.
Pairing a cash rebate with a non-subsidized interest rate may bring the best payment option for you with the least amount of interest paid.
Step 3: Find out the full cost of your new car. Ask for the total amount paid over the length of each term you are considering.
Many salespeople are hesitant to show you this information because the purchase price with interest is significantly higher than the sticker price.
Compare the total amount paid for each term. If you can make the payments, choose the term that offers the lowest overall amount paid.
Step 4: Consider using a lender apart from the car dealer. Car dealers use lenders with good rates in most cases, but you can usually achieve better rates outside of the dealership – especially through a line of credit.
Use your lower rate you obtained from your own lending institution in combination with the cash rebate from the dealership as an option that may have the best repayment terms overall.
Part 3 of 4: Know the best interest rate for your used car purchase
Used vehicle purchases don’t qualify for a manufacturer’s subsidized lending rates. Often, used vehicle finance rates can be higher than new car rates along with shorter repayment terms since they are a slightly more risky investment to your lender. You can shop around for the interest rate for your used vehicle purchase, whether you are buying from a dealer or as a private sale.
Step 1: Get pre-approved from your financial institution for a vehicle loan. Get your pre-approval before you make a sales agreement for a used car.
If you have been pre-approved, you could confidently negotiate for a better rate elsewhere knowing that you can always fall back on your pre-approved loan amount.
Step 2: Shop for a better interest rate. Inspect for local lenders and banks that advertise low interest rate loans.
Do not apply for a loan unless the terms of the loan are agreeable and better than your initial loan pre-approval.
Step 3: Get your sales agreement. If you are purchasing a car through a private sale, get the loan financed via the institution with the best rate.
If you are purchasing through a car dealer, compare the rates they can give you with the interest rate you’ve already gotten elsewhere.
Choose the option that offers the lower payments and lowest overall loan repayment amount.
Part 4 of 4: Check options for a non-prime auto loan
If you have not had a credit card or loan before, you will have to begin building your credit before you are getting to get the prime interest rate provided. If you have a poor credit rating because of bankruptcy, late payments, or repossessions, you’re thought a high-risk customer and won’t receive prime rates either.
Just because you can not get prime interest rates does not mean you can’t get a competitive interest rate for a vehicle purchase. You can check with several lenders to get the best terms offered for your situation.
Step 1: Consult your primary financial institution for a vehicle loan. It’s always best to begin with a lender that knows your history, even if it is limited or flawed.
Get a pre-approval, knowing your interest rate will get considerably higher than their advertised rates.
Step 2: Check with other non-prime lending facilities.
- Note: Non-prime stands for a higher-risk or unestablished customer who has a higher threat of non-payment for their loan. Prime lending rates are provided to those with a proven track record of consistent and prompt payments, who are not seen as a risk to default on their payments.
Run a search online for “same day car loan” or “bad credit car loan” in your area and look through the top results.
Check for lenders with the best rates and contact them or fill out an online application for a pre-approval.
If the rate offered is better than your pre-approval and you qualify for the loan, submit an application.
Apply only to the best of the lenders you have inquired from.
Step 3: Check for in-house financing from your car dealer. If you are buying a car from a dealership, there may be the option to pay for your car loan in-house instead of through a lender.
In this form of loan repayment, the dealership particularly acts as their own bank. This may be your only option if you have been denied a vehicle loan everywhere else.
Shopping for a vehicle loan isn’t the most fun part of buying a vehicle, but it is very vital to make sure you aren’t paying more than necessary for your vehicle. Running some research and being ready can get you the best repayment option, and can equally help you to put down a large down payment on your vehicle purchase, motivating the lender to work with you even harder.