If you know just what to do, you can get the best auto lending rates available. Look no further for a guide on how to pay less interest. The tips you need to remember are found below.
Pull your credit report and know your score
Get a copy of your credit report from all three credit bureaus: Equifax, Experian, and TransUnion. Thanks to the Fair and Accurate Transaction (FACT) Act, you are entitled to get one free report from each credit bureau once per year. You should peruse the reports and check for any errors or inaccuracies, as these can affect your score and in turn affect your auto loan interest rate. The lower your score, the higher the rate.
Unfortunately, your credit score is not included in your reports and cannot be requested for free. You have to pay to get it. Before you request it, you have to address your credit problems found in the reports first. Settle debts or at least reduce them. If there are errors and inaccuracies in the report, dispute them prior to asking for the score.
With your reports and score in hand, you can start looking at cars that are within your budget. Afterward, you should find out what auto loan rates lenders are offering. Start with two of the main sources of auto financing: banks and credit unions. Consider online finance companies as well. Dealerships have a bad reputation, but don’t discount them immediately—you never know what you will get.
The only way you can find the best rate available is if you do some searching. Compare quotes to see which creditor offers the best deals.
Keep your loan term short
If your goal is to get a low-interest rate, choose a shorter repayment period. Lenders are more likely to charge less interest if you repay the loan sooner because there is less risk involved. Experts say that the most ideal loan terms are 36 months and 48 months, and that going beyond these are not recommended.
Note that a shorter repayment period increases your monthly payments. If you want to make your payments more affordable without needing to extend the loan term, you should save up for a hefty down payment. Suggested down payment is 20 percent of the purchase price of the vehicle, though some dealers accept just 5 percent.
Learn to negotiate
Just because you deserve it doesn’t mean they will give it to you. Even if you have good credit and you qualify for the best rates, the lender will not automatically offer them to you. If you want the best rate, you are going to have to fight for it. This is most especially true when you finance your vehicle through a dealership.
The reason you must know your credit score before you go car shopping is for you to be in the best position to negotiate. Believe it or not, dealers can legally increase their rates to make more profit. You need not pay more than you need to though—if you have checked your credit score and know just what rates you are eligible for, you will not be tricked into a bad deal.