If you’re shopping for a new (or new-to-you!) car, you want to ensure you get the best deal possible. And while it’s possible to secure an auto loan with any credit score, the higher your score, the better rate – and savings on monthly payments – you’ll receive.
But what else factors into ensuring you get the best rate? Read on for our top three tips to ensure you land the best auto loan deal for your financial situation.
- Get Your Credit in Check
While the minimum credit score for an auto loan rate varies by lender, the average score needed to qualify is one in the mid-600s, with a score of 700 or more securing the best rates. So, before you begin visiting dealerships and applying for auto loans, spending some time improving your credit score can save you serious cash – over $10,000 a year! – on your monthly auto payments. That’s because, the higher your score, the better your auto loan rate. And, if you’re applying to lease, this can significantly impact your monthly payment.
For example, as Experian explains, let’s say you have a credit score in the mid-600s or higher, This would enable you to a $30,000 new car with a 3.99% APR over 60 months, averaging a monthly payment of $552 plus $3,120 in interest payments over the term of the loan.
However, if you have poor credit, you could still likely be approved for the loan, but with an APR of 15.99%, skyrocketing your monthly payment to $729, and over $13,000 in interest over the 60-month term.
And while we’re on the topic of maintaining your credit…
- Try and Shop Within a Two Week Period
By conducting as much of your car research before you head to the dealership, you’re actively protecting your credit score. That’s because, for each car loan you apply to, the lender pulls a hard inquiry on your credit score. So if you’re visiting up to 10 dealerships to shop for a loan in a month, that could be 10 hard inquiries on your credit score, which could drop your score over 100 points!
However, the FICO credit score model gives borrowers a bit of a grace period, granting them a 14-day window to shop for loans, and only counting those hard credit pulls as a single inquiry. So if you’re able to condense your car loan shopping to a two week window, you could protect your credit score by 100 (or more) points.
It’s also worth noting that some lenders offer prequalification for loans on their website, so you can browse potential loan offers and get an idea of what your monthly payment and interest rate would be without impacting your credit score.
- Make a Larger Down Payment
There are definitely ways to negotiate an auto loan to ensure you don’t have to put any money down, but that doesn’t mean it’s in your best interest. In fact, the larger your down payment, the less risk you pose to the lender, meaning you’re more likely to be approved for a lower interest rate.
By paying less in overall interest, the amount you’ll be applying to borrow will be lower. So, if possible, save up as much as you can before you begin to apply for auto loans to save yourself some cash in monthly payments and the overall amount of the loan.
Need to save some cash? Read our tips for saving $22k in 2022.
Whether you’re choosing to lease or finance a new vehicle, be sure to educate yourself on all of your options before stepping into a dealership. Walking into the buying process well-informed, along with having your credit in check, will guarantee you can get the best possible rate (and overall monthly payment) for your new vehicle.
If you’re in immediate need of a car but aren’t in the best financial position, consider bringing on a cosigner (someone with better credit and financial standing than you) to help get you a better rate and lower overall payment. Just be sure this is someone you can trust, and, as always, consult with a financial advisor if you’re unsure whether a loan of any kind is the best fit for you.
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The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.
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