Whether you are offered an auto loan with a reasonable interest rate depends on a number of factors – your financial institution, the amount required, type of vehicle, if it is a new or used vehicle, and a lot more. Your income and credit history would be taken into account as well.
Contact Financial Institutions in Your Area
It is better to shop for an auto loan separately because car dealerships usually offer higher interest rates than than banks. Your insurance provider is also an option. If you are a union member, check with them first. Unions usually offer attractive rates on financial products and in most cases, the lowest interest rates on vehicle loans. Once you are prequalified, you can go to the car dealer. Make sure you bring a blank check along.
Stay Away from Providers That Offer Conditional Financing
This is very important when applying for an auto loan because if you agree on conditional or contingent financing, the provider is free to change the terms and conditions at any time. You have to be extra careful when you deal with car dealerships if this is what you choose to do. Make sure you have a formal agreement that details things like the monthly payment amount, loan repayment schedule and length, interest rate, down payment, and so on.
Focus on Your Credit Score
Obviously, lenders take a closer look at your credit history and score. Applicants with spotless and very good scores are more likely to benefit from attractive terms and rates compared to those with blemished credit. To this end, the first step is to ask for a free copy of your credit report. Once you get the copy, check the report for omissions, errors, and inaccuracies. If the report looks OK, the next step is to focus on your score. If you have a poor or fair score, there are different ways to improve it provided that you don’t need a car loan urgently. One thing to do is to apply for a small loan with a short repayment period. Another is to apply for a personal credit card with a small limit. Keep in mind that if you are in the high-income bracket, the issuer may be more willing to offer better rates even with average credit.
The more money you save toward the down payment, the better the terms and conditions. With a larger down payment, you will be able to repay the loan within a shorter period of time.
If paying for a car is out of reach for you at the moment because you have bad credit you can consider getting a credit card first, which will allow you to improve your credit and eventually apply successfully for a car loan. Sometimes your credit might be so bad, that the only option is a secured credit card, but this will still work towards improving your credit.
Read the Fine Print
Even if you are happy with the interest rate and other terms, it is important to read the fine print carefully. There are red flags to pay attention to, including things like prepayment penalties, whether you are offered a fixed or variable rate, the amount of the down payment, and others. Be extra careful if the fine print includes mandatory binging arbitration. This means that if you are unhappy with the terms or anything else, you don’t have the right to go to court and sue your financial institution.