4 Steps to a Good Car Loan Rate

After plotting, researching and saving, you are finally ready to commit to a brand new vehicle. Despite feeling confident in your car choice, you aren’t really sure how to tell if you are getting a good auto loan rate.  Auto loan rates will vary from person to person, but there are a couple of ways to ensure you get the lowest rates.

Ensure You Have Good Credit = Good Car Loan Rate

Before searching for any type of loan, it is important to know your credit score. Most auto lenders use a credit scoring system that looks at the top 3 credit bureaus and averages their scores. This rating system is the main tool the lender will use to determine what rate you will be offered on your new car loan. Credit scores range from 300-850 — you’ll be offered more money and better rates if you’re closer to the 850 side. You will often hear or read in the loan advertisement’s fine print that the best interest rates only apply to people with tier 1, 2 or 3 credit. While the exact range of the tiers vary from lender to lender, the top 3 tiers are people with average to excellent credit scores, or the mid-600s to 850. After checking your credit, if you find you’re on the low side, we’ve put together some quick tips to help you raise your credit score to get a good auto loan rate.

Reduce Debt-to-Income Ratio for a Better Auto Loan Rate

One of the most important factors a lender considers besides your credit score is how much you can afford. Do your debt payments total more than 40% of your income? If so, you may be at a higher risk for a financier to lend to and may pay a steeper rate to qualify for the car loan. Consider paying off a credit card or a personal loan to reduce the amount of monthly payment obligations. Not only will this help you secure a good car loan rate, this will typically also improve your credit score.

Learn What Factors Contribute to a Good Car Loan Rate by Doing Your Homework

Besides your credit score, there are other factors that may affect the car loan interest rates available to you. For instance, your geographic location, the price of the car, the amount of your down payment, your income and job stability, may all affect whether you get a good car loan rate. The best place to start is online. You can research car loan interest rates based on your location and get an idea of what sort of rates you should expect. If your credit score is lower than about 680, consider reducing the cost of the vehicle you’re planning to buy by adding less options, opting for a lower cost model, or increasing the amount of your initial deposit.

Secure a Good Rate Before You Buy

Regardless of your credit score, another way to make sure that you are getting a good auto loan rate out there is to walk into the dealership with a loan already pre-approved. Yes, the lenders the car manufacturers work directly with have many enticing offers with low or even 0% financing, but not everyone is entitled to it. Remember, these offers are typically reserved for the top tier credit customers. If you’re credit is not well above 700, you may be best to apply for an auto loan with your bank or online. We work with a number of car loan providers with competitive interest rates; compare auto loan rates. Once you’ve secured a good auto loan rate, you can always check in with the dealer to see if they are willing to beat the financing you already have available.

Photo credit:David Hilowitz