Car Financing Tips

The Average Car Buyer Gets Overcharged by $1,500 When Getting a Car Loan. Learn How to Prevent This From Happening to You

Getting a car loan is typically the one place where new car buyers lose out on huge savings. It's the silent killer that slowly sucks your hard-earned dollars out of your pocket.

This is because most car buyers get their financing through the dealership. Many have the mistaken belief that new car loans can only be obtained through this method. Studies show the average car buyer ends up paying 3% extra interest on a loan financed through a dealership. On a typical 5 year loan for $25,000, that comes out to more than $1,800 extra in interest payments.

The way to save money on your car loan is to get rates from multiple lenders and have them compete against each other until you get the lowest possible rate. It's actually pretty simple, but the problem with most car shoppers is they go with the first rate they get. Worse still, this usually happens at the dealership after they've negotiated the price of the car.

Get Financing Before Going to a Dealership

Most car buyers have it backwards. They go to a dealership, negotiate the price of the car, then finally get financing. This is the worst thing you can do. Get financing first, then negotiate the car price. There are 2 reasons you want to do this. First, by getting financing before making the purchase, you'll know what rates the dealership will have to beat if they expect you to finance through them. Secondly, you won't fall victim to the shady practices many dealers deploy and get stuck with the high rates they typically offer. They know that negotiating the price of a car can be exhausting. They know your psychology is setup so you're willing to go along with a bad rate just to get the process finished and go home. Don't fall victim to their tricks.

Step 1:

  Check Your Credit Score

The first thing you need to do is check your credit score. If it's below 625, you shouldn't even bother trying to get a loan from traditional lenders. You'll simply be rejected, especially now that credit is hard to get. But more importantly, it's good to check your credit score to make sure there are no errors. You'd be surprised how often people find errors which lower their credit scores, thus resulting in higher loan rates.

Credit scores range from 350 to 850, with most people scoring in the 600s and 700s. A score below 600 is considered risky and a score under 700 is usually considered sub-prime these days. Get your credit score to see where you stand and figure out which loans you can qualify for.

Step 2:

  Compare Rates From Online Lenders

After checking your credit report, you should now have an idea of how good your credit is. Use the following services to see what rates you qualify for:

Step 3:

  Compare Rates from Banks and Credit Unions

You can typically get better rates with online lenders rather than banks due to the lower overhead, but you still want to check just to make sure. Remember, these are all lenders competing for your business and contacting as many as possible will reap you the most savings. First, call up any banks that you currently have an account with. Tell them you're interested in buying a new vehicle and would like a loan. The rates you're quoted are not set in stone and can sometimes be negotiated. Keep that in mind. Repeat this process with at least 3 banks to get a variety of rates.

The final thing you need to do is check rates with credit unions. They tend to offer the best auto loan rates and have not been affected as much by the credit crunch. If you're not currently a member of a credit union, you can find out which credit unions you're eligible for by calling a credit union league representative. Here is the list of phone numbers by state

Step 4:

   Choose the Lowest Loan Rate

Now that you have all the rate quotes, you should get back in touch with the banks and see if they can beat the lowest rate, especially if your credit score is good. Sometimes all it takes is to ask.

After you decide which company to finance with, they will usually send you a blank check via next day air. You will be qualified for up to a certain amount, for example, up to $25,000. So now you'll know your budget. When you go to negotiate the price of the car, you just need to stay below this figure. When the deal is done, you can fill out the check and pay the dealership right there on the spot. But before you do that, you'll want to see if the dealer can beat the financing rate. Usually, they can't unless the car manufacturer has special financing offers. These are usually reserved for buyers with great credit. Either way, you don't have to worry because you will have already setup financing and it's up to the dealer to try to beat the rate.

That's it. You now have the knowledge to get THE LOWEST rate when getting a car loan. Good luck!

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Be sure to read our other money saving tips:

• How to Buy a New Car
• Used Car Trade-In Tips

  We always welcome your car buying questions. Email Us and we'll be glad to answer them!