How to Get the Best Financing on Your Next Car
Getting the best deal on automobile financing doesn’t mean accepting the seller’s first offer. To make sure you get the lowest possible interest rate, good dealer incentives, and a monthly payment that works well for you, you will have to do a little legwork—but the effort could save you thousands of dollars.
Of course, a good first stop is your own credit union. Getting a pre-approved auto loan from PenAir gives you a sound starting point, and the leverage to know whether any other offers are as good a deal as they sound.
Check Your Credit Report and Make Necessary Improvements
Before you shop for a loan, first obtain your credit reports from each of the three major credit-reporting agencies (Experian, TransUnion, and Equifax). Dispute any erroneous information, pay old debts, and reduce your unsecured balances. Building up your credit enough to see an improvement in your credit score takes time, but it can make a tremendous difference in the deal you are offered.
Bring Your Own Credit Report with You
If you plan on using dealer financing, take your own credit report to the dealership. The salesperson may still access one but having your own can thwart being denied the best rate because your credit isn’t good enough – when it actually is.
Make sure the report is current (within the last 30 days) and that it is complete with a FICO score (a number ranging from 300 to 850 that is generated by the Fair, Isaac & Company that helps lenders assess lending risk). The higher your score, the greater chance you will qualify for the best financing deals.
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Consider a Co-signer – Carefully
If you have less than perfect credit, you may consider having someone with good credit co-sign the loan for you so you can get a better deal than you would on your own. Be cautious when using this option. The co-signer assumes equal responsibility for the repayment of the loan and any late or missed payments will appear on both of your credit reports.
Shop for the Best Deal
The total amount you will pay for your car depends on its price, the annual percentage rate (APR), and the length of the loan. Shop around and compare offers. Search the Internet and call various lenders. Rates at your local financial institution are frequently better than what you would get at a dealership, and you won’t have to worry about being “scammed.”
If you come to the dealership with your financing pre-approved elsewhere, then all you have to worry about is getting a good deal on the price of the vehicle. However, if you also need financing, then the dealership will have more leverage because then they can choose to give you a good deal on the financing but not such a good deal on the price of the vehicle or vice-versa.
Be sure to ask about manufacturer’s incentives, reduced finance rates, and cash back on specific car models. Run all of these through the Auto Loan Calculator to see the advantages (or distractions!) more clearly.
Lastly, remember that if you are in the market for a vehicle loan, try to rate shop and compare with as many lenders as possible within a 14-day window as it will only count as one hard inquiry for credit score purposes. Newer FICO models have extended the rate shopping window to 45 days.
Financing Offers Can be Tricky
Don’t be fooled by an advertised low monthly payment. If the length of the loan is long and the interest rate high, you will be paying more than you may have to.
And be wary of extremely low promotional APRs. Though you may qualify for particularly low rates by making a large down payment, it may be more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment.
Read and Understand Your Loan Document
Finally, before you sign any document, make sure you read the loan document carefully. Be sure you understand and agree to the:
- Exact price you’re paying for the vehicle
- Amount you’re financing
- Finance charge
- APR
- Number and amount of payments
- Total sales price
Is it worth it to take the time to build your credit, learn about the lending process, shop around, compare rates, and negotiate? If you want to save a lot of money, the answer is an unequivocal “yes.” By doing so, you can drive away secure with the knowledge that you received the best deal possible.
If you are not yet a member, PenAir welcomes new members. You can even join online and apply for a loan at the same time.
Next Steps
When you are ready to take off on a new driving adventure, check out the resources we have for you here at PenAir: