How to Get a Lower Car Loan APR

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The APR (Annual Percentage Rate) that you pay on a car loan is calculated annually on how much you owe. A lower APR will lower your payments and reduce the total amount you ultimately pay for your car. You can get a lower APR by shopping around, raising your credit score, and doing a bit of negotiating.

Check your current credit score

Step 1: Order your current credit report. You can get a free credit report annually from sites like TransUnion and Equifax, but you will probably have to pay to get your credit score. Some credit card companies provide your credit score monthly on your statement, free of charge.
Step 2: Improve your credit. Pay off some of your debt. This is one of the best ways to get your credit score up and get a lower APR.
Step 3: Check your credit report for accuracy. It doesn’t happen all that often but sometimes one person’s debt gets put on another person’s credit report by mistake. You may be able to raise your credit score by simply correcting an error.
  • Tip: Ideally, you want a credit score of 700 or above. A score of 629 is okay; however, if your credit score is below 540, it will be nearly impossible to get a low APR on a car loan.

Do some “window” shopping

Step 1: Take a look at new cars. Even if you think there’s no way you could afford a brand new car, you might be pleasantly surprised. You can generally get a lower APR on a new car loan, which could lower the price to within your price range.
Step 2: Take a look at used cars, too. You can often get a very good APR on a loan for a low-mileage used car that is in good shape.
  • Tip: Do not buy yet! If a dealer insists he or she can get you a good APR, and you have the time, go ahead see what he or she has to offer, but don’t buy.

Search around to see who’s offering the best APR

Step 1: Check with your current bank. A bank where you already have an account in good standing may offer you the best APR.
Step 2: Contact other banks in your area. You may get a better deal at a different local bank, especially if you agree to open an account there.
  • Tip: A bigger down payment may get you a lower APR on a car loan.
Step 3: Check the APRs being offered by online lenders. There are some very good deals to be had online and they don’t mess around. With online lenders like LightStream and Lending Tree, you can compare rates and apply for the loan online. Generally, you can expect to be pre-approved quickly, usually within hours.
  • Tip: Get a car loan that has a shorter duration of 24 or 36 months rather than 48. The shorter the duration, the lower the APR.

Plan to refinance

Step 1: Get the best APR you can and buy the car. Pay your payments on time every month. Include an extra principal payment when you can to get the loan balance paid down faster. During the first few years, most of your payment is applied toward the interest on the loan.
Regardless of whether or not you have good credit and how much APR you are paying for your car loan, it’s worth it to go through the whole process again after a year or two. By then, your credit rate should be up and the principal on your car loan should be at least slightly lower.

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