How to Score a Good Car Loan
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If you’re in the market for a new or used vehicle, you’ll likely need to take out a loan. Of course, when you’re getting a loan, you want to be sure that you get the best deal possible, so you aren’t paying too much for the vehicle in terms of interest. If you want to get a good car loan, consider the tips below.
1. Check Your Credit Score
If you want to score a good car loan, you need to have good credit. Otherwise, you’ll run into problems. In some cases, your credit might be so bad that it’s difficult or even impossible to get a car loan. If you can find a loan with bad credit, it means that the terms will not be favorable and you’ll have a high interest rate.
However, if you take some time to work on your credit score and get it to a respectable level, you’ll find that getting a good car loan becomes much easier. More banks and credit unions will be willing to work with you, and you can get lower interest rates.
If you need a car and can get a loan with poor credit, you’ll still want to work on your credit score going forward. This will help to ensure that your score is rising, so you can eventually refinance and get a better car loan.
2. Shop around for the Best Total Loan Amount
Once you’re certain that you’ve improved your credit score to the point where you should be able to get a favorable loan, you’ll want to start shopping around. Rather than going through a dealership when you’re trying to get a loan for your car, you’ll want to shop for the loan separately from the vehicle.
Get prequalified for a loan and then go to the dealership. This will give you more power in negotiations, and you’ll know how much you can reasonably spend on the vehicle.
When you’re looking at a loan, you need to think about the overall loan amount, not just the monthly payment. The only time that you should think about the monthly payment is when you’re at home calculating how much you can afford for your car each month. When you’re talking with the lenders, don’t talk about monthly payments.
This is because some lenders will try to get you to extend the length of the loan, lowering your payments but ultimately getting you to take out more money than you need. Even though the payments might be lower, it means you’ll end up paying more in interest.
Also, be sure that you’re limiting your shopping around to two weeks or less, so you don’t damage your credit score. Each time that you apply for a loan, whether you’re approved or not, your score will decrease. If you’re applying for multiple loans, apply for all of them within these two weeks, so they only count as one inquiry on your score. If they are spread out beyond that period, they will count as multiple inquiries.
3. Always Read the Fine Print
When you’re presented with a loan, you need to read the fine print to make sure that you understand all of the terms that are presented. Check the loan to see if there’s a variable interest rate and how high the interest rate could go, for example. If the rate could make it so that you can’t afford your monthly payments, you’ll want to renegotiate or walk away.
Additionally, you should look at the prepayment penalties that are part of many loan contracts. This lets you know how much you’ll need to pay if you want to pay the loan off early, or if you want to refinance or sell the vehicle.
Make sure that everything the lender promised you made it into the loan agreement. If it hasn’t, make them add it or be willing to walk away. Never sign the loan agreement until you’re happy with what it says.