Guide to Getting the Cheapest Car Loan
You'll be surprised how much money you can save simply by comparison shopping.
Oftentimes, consumers tend to be timid when shopping for an auto loan - feeling as if they're asking for a hand-out. Get that thought out of your head because lenders WANT your business! They make tons of money with car loans so don't think of it like they're doing you a favor.
Note: Before you start shopping for an auto loan, you need to first know your credit score and check for errors in your credit report. Improving your credit score is the best way to save money on financing (See: How Fixing Your Credit Score Can Save You $8,500).
That being said, let's move on to the good stuff and show you how to get the cheapest possible auto loan rates.
Step 1. Check for Special Manufacturer Finance Rates
The best car loan rate you could possibly get is 0% financing, and the only way to get it is through the car manufacturer's finance division. These are called captive finance companies - Toyota Financial, Ford Credit, and Honda Financial Services are some examples.
Manufacturers will sometimes offer very low interest rates on certain models to help boost sales. They lose money on the financing, but make it up in increased vehicle sales. Interest rates have been low recently so we're seeing a lot of financing deals in the 0% to 2.9% range. These special rates are usually available only on certain models, so you need to check if your desired vehicle has these incentives available.
You can check by visiting the manufacturer's web sites, calling a local dealer, or by filling out the price quote form below. The dealers will let you know of any rebates and incentives available in your area along with a no-haggle price offer.
Tip: When a manufacturer offers special finance rates, they usually offer a cash-back rebate as an alternative. In most cases you will have to choose between the two. If you can find a decent financing rate elsewhere, it's usually better to take the cash rebate from the manufacturer. Make sure to keep that in mind.
Step 2. Get Car Loan Rates Online
The next step is to start comparison shopping rates online. Thanks to the internet, the process has become very simple and efficient. Most online lenders have less overhead expenses compared to traditional lenders such as banks. Because their costs are lower, they can sometimes pass the savings to you through lower interest rates.
I recommend you get loan quotes from the following source. You'll be using the rates you get online as a "control source" which you will use to your advantage when comparing loans from other sources later.
1. Auto Credit Express - they have dozens of lenders in their network and can provide financing even if you don't have the best credit.
What to Expect: - After filling out your online loan rate request, you will usually get at least one or two approvals within 48 hours (as long as you don't have sub-prime credit). Follow up with them and make sure you get the following information clearly stated:
- Annual Interest Rate
- Lenght of Loan
- Amount Financed
- Lending Source
If you don't get favorable rates, don't be discouraged. You still have several other sources that haven't been tapped yet.
Step 3. Get Quotes from Credit Unions
Credit unions are not-for-profit "banks" with the sole purpose of providing reasonable loans to their members. They tend to provide the lowest rates, so you should always include one or two when shopping for a car loan.
In addition to being trustworthy and competitive, credit unions are more likely to work with first-time buyers. They also tend to charge the same rates whether you're buying new or used (most other lenders charge a higher rate for used vehicles).
In order to get a loan through a credit union, you have to become a member (don't worry, it's easy). Here's an article on How to Find and Join a Credit Union.
Step 4. Get Quotes from Banks
Banks should be your next source for auto finance quotes. Oftentimes, they offer special finance rates that can be hard to beat.
Your first call should be to banks that you already have a relationship with. They're more likely to offer you better rates since you have a history with them. Make sure you let them know about the best rates you qualified for through the earlier steps and see if they can beat it. Remember, everything is negotiable!
Step 5. See if Dealer Can Beat the Best Rates
Your final step is reserved for when you actually visit the dealership to purchase the car. They will want to know if you'll be financing the vehicle.
Since you went through the process of arranging your own financing, you're in a great position now. All you have to do is tell the dealer the best rate you were quoted and see if they can beat it. Dealers have a network of lenders, some of which work exclusively through dealers, so there is a chance they may beat your best rates. If so, think of yourself as lucky. If not, no problem because you can rest assured you got the best rates on your own.
That's really all there is to it. Getting the cheapest car loan rate is simply a matter of taking the time to comparison shop. This entire process may take a few days to complete, but you'll be saving hundreds, if not thousands of dollars in the process.
My Recommendation for Car ShoppersTrueCar No-Haggle, Edmunds Price Promise and 1-800 Car Show are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan
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About: Gregg Fidan
Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.