If you only look at the car loan’s monthly payment and not at the total cost of financing, you may be agreeing to spend thousands of dollars more for your car. It’s not fun, but shopping around for loans is a smart way to save all that money. If you’re interested in getting the best loan terms, do these things.
Set Your Budget
If you walk into a dealership, the dealer will ask what your monthly budget is. They can then use that number to sell you an expensive car and make you pay for it over the next seven years. You’ll be paying too much interest in that case. Set how much you want to spend, i.e., focus on the total cost of the car, not the monthly payment. Calculate the total number of payments and the interest you will pay. That way, the dealer can’t add unnecessary features to your loan.
Check Your Credit
Even before you head out, check your credit score and credit reports. If you have poor credit, then you’ll have to pay higher rates. Ideally, wait and work on improving your credit before applying for a loan. If you have excellent credit, use it to bargain and get better terms for your car loan.
Shop for Loans
After you have your credit details, contact banks, credit unions, and online lenders to find the best car loan rates. Credit unions are often the best but require you to be a member. Your next best bet is local and community banks. Online lenders and big banks can also offer good deals if you have excellent credit.
Get Preapproved
Once you have several good quotes and find a lender you’re comfortable going into business with, apply to get preapproved. This requires a hard credit check, so only do it if you’re ready to buy a car. You’ll get a letter with your preapproved loan terms that you should carry as a negotiation tool to the dealership to try and get a better offer.
Don’t Consider Personal Loans
Personal loans are unsecured, and the interest rates are high. Car loan rates are lower because lenders can take the car if you default.
