How do I shop for a car loan?
My old car finally bit the dust. I’m in the market for a new car now, but I’ve only bought used cars with cash so I’m not exactly sure where to start. What’s the best way to shop for a car loan?
Sorry to hear about your old car, but buying a new car is an exciting adventure—even if you have to get a car loan. Don’t stress about it. Once you get the basics, shopping around for a car loan won’t feel nearly as overwhelming.
To shop for a car loan, the first thing you should do is look at your credit report. Knowing what’s on your credit report and being aware of your credit score are essential. By reviewing your credit report, you can pay off high-interest debt and any delinquencies. If your credit report is tip-top, knowing your credit score can help you negotiate an interest rate.
The next step is to find out how much you can afford using the 20/4/10 rule. This rule states that you should:
- Have 20% available for a down payment
- Only get a car loan for four years (48 months) or less
- Spend only 10% of your pre-tax income on monthly car payments
By following the 20/4/10 rule, you can budget appropriately without overspending or overextending your finances.
Finally, you should shop around to get the best rate. Check out rates from a variety of sources, such as:
- Credit unions
- Third-party or online lenders
Once you’ve found a preferred lender, remember that you will also need full coverage car insurance as required in your car loan contract.
To shop rates from over 50 insurers, use the Jerry app. Sign-up only takes about a minute and Jerry will help you take care of the paperwork, including switching your policy and canceling your old insurance.
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