If you’re getting ready to apply for a car loan, you might be wondering how your rate is determined and what action you can take to ensure you get the best rate possible. After all, a good interest rate can help to lower your monthly car payments and save you a lot of money on the overall cost of the car. To try and get the best rate possible, it’s important to:
Check your credit report
Because good credit is a factor that heavily influences what your interest rate will be, you should always carefully look through your credit report before applying for your car loan, or any loan for that matter. You can easily look over your credit report for free, and this should always be the first step. You may have had great credit the last time you checked, but perhaps there is something new on your credit report that you aren’t aware of that might be bringing your score down. This might even be an error; in fact, it’s not uncommon for credit reports to contain errors. If you notice something that’s not quite right, dispute it and wait until the situation is resolved before applying for a car loan.
Potential errors aside, there may be other factors that have brought down your credit score, such as high balances on your accounts. Do what you can to get your credit in tip-top shape before you apply for your car loan if you’re hoping to get a terrific rate.
Have a down payment
While it may be possible to finance a car with a very small down payment, you increase your chances of a better rate with a larger down payment. Although large down payments may not be required to receive the best rate if you’ve got great credit, they may be one of the few options that those with poor credit have if they’re hoping to lock in a low interest rate for their car loan.
Compare rates locally and nationally
Next, you’ll want to shop around and find out what interest rates local lenders (such as credit unions and banks) are offering, compared to national lenders. Be sure to go through all of your options and don’t just settle on the first great rate you find. Although credit unions tend to offer lower rates, you might find a national lender or local bank that is offering an even better one.
Once you’ve found the lender with the best rate, the next step is try to get that rate even lower, especially if you have terrific credit. Use your credit score as a bargaining chip to see if you can get a lower rate, but even if you don’t have the greatest credit, it still doesn’t hurt to try to get a more favorable rate. If you’re negotiating with a bank that you don’t currently have a checking or savings account with, offer to open one if you can get a better interest rate on your car loan.