The Ultimate Guide to Picking an Auto Loan
In order to get the best interest rate on a car loan, it is important to compare loan lenders and offers and get your loan pre-approved before you go to a dealership.
Follow these steps to pick the right auto loan:
Check Your Credit Report
Your income and credit score will determine how much you can borrow and at what interest rate. So, before you apply for a car loan, check your credit report. If there is any incorrect information or errors on your report, you could be offered a very high-interest rate or turned down for a loan.
If you find any evidence of fraud or errors when you check your credit report, get them corrected before you apply for an auto loan.
If your credit is poor or subprime (a score of 600 or lower), and you don’t need a car right away, it is recommended that you spend about 6 months to a year and improve your credit score before you apply for a loan.
Apply for Loans from Multiple Lenders
Once you’ve checked your credit report, it’s time to find auto lenders, which can be categorized as follows:
– Dealership financing or ‘captive’ lenders
– Online lenders that only provide auto loans
– Bank of America, Capital One, and other such large national banks
– Credit unions or local community banks
Even if you choose to go with the dealership financing option, you should compare quotes from online lenders, large national banks, credit unions, and local community banks. You may get a preferred rate from your own bank or credit union for being a customer.
Also, if you want to buy your car from a private party instead of a broker or dealer, ensure that the lenders you choose allow this.
Get Preapproved for A Car Loan
Once you’ve shortlisted a few lenders, request them for their interest rate quotes and compare them. You can get the best rate by getting lenders to compete for your business since each one weights factors in your credit report differently. This implies that the interest rate offers for your car loan can vary drastically.
Some loan lenders offer pre-qualification that requires only a ‘soft’ credit pull. However, other lenders provide preapproval, which requires a ‘hard’ credit pull, that could lower your credit score temporarily. While pre-qualification gives you an estimate of the interest rate you expect, preapproval gives you a specific rate offer. This way, you won’t fall victim to the interest rate markups at the dealership. It is recommended that you apply to lenders that provide preapproval within 14 days of your purchase so that the impact on your credit score is reduced.
