Auto Loans

Getting an auto loan doesn’t just get you behind the wheel of a car; it also can help you build a better credit score. You can improve your score by making payments on time, but having a car loan also can improve your credit mix, which counts as a percentage of your credit score, according to FICO.

Whether you’re a first-time buyer or want to refinance, you need to shop among lenders to get the best deal. Take a look at which car loan terms are most important to you and your budget.

Differences in Auto Loans

Loan Terms

Depending on the lender, you can find auto loans from 12 months to 96 months for new cars and from 12 months to 72 months for used cars. Some lenders will also offer terms of up to 72 months on refinance and lease-buyout loans. Although a longer term can help you get a lower monthly payment, you’ll end up paying more total with interest over the life of the loan. See the latest Auto Loan Rates here.

Loan Rates

When you want to finance a car, most lenders look at your FICO score to decide what interest rate to offer you on a loan. Scores in the highest range of 720 to 850 can qualify for the best rates, whereas scores in the lowest range typically qualify for the highest interest rates. Don’t be afraid to negotiate for a better rate if you have a strong credit score.

Preapproved Financing

Doing a bit of legwork before trying to make a deal on a car can make you more loan savvy and save you time at the auto dealership. Contact your bank or credit union first to see what kind of financing they can offer you on the type of vehicle you want. If you go with your bank’s loan, ask for a letter of preapproval, which can give you better negotiating power at the dealership.

Dealer-Arranged Financing

Sometimes applying for an auto loan through the dealer is a better choice if you want to take advantage of a special financing deal offered by the manufacturer or if you require a lender who is willing to finance people with lower credit scores. Dealers are experienced with all types of lenders and can help people who are credit-challenged get financed.

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Comparing Auto Loan Offers

Although it’s tempting to focus on getting a monthly car payment that fits your budget, that’s not the only aspect of an auto loan offer you should consider. A higher APR plus a longer term can mean you’ll pay hundreds or even thousands of dollars more over the life of the loan.

You also need to account for fees, warranties and any other contract terms to understand the total cost of the car. Even if you’re offered an attractive payment amount, that doesn’t mean you’re getting a great deal, so ask questions about the total cost and shop around before signing on the dotted line.

Ways to Apply for an Auto Loan

When shopping for a car, you might not be able to be approved for a loan on your own due to income or credit history requirements. As an alternative, you can apply jointly or ask someone to co-sign on your behalf to secure the financing you need.

When you receive a joint auto loan, you and the other person share equal ownership in and payment responsibility for the vehicle, whereas a co-signer has no legal rights to the vehicle but can be held liable for loan payments if you default.

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Ways to Save on an Auto Loan

Pay Extra Toward Your Loan

Paying more toward your auto loan can help you pay it off faster and save money. One way you can pay more is to round up your payment to the nearest hundred. For a payment of $569, for example, you could round it to $600. Another method is to apply any extra money you receive, such as a bonus or tax refund, toward the loan.

Divide Your Payment

To pay off your loan early and reduce the amount of interest you’ll pay, make half of your payment every other week instead of every month, which will equal 13 instead of 12 payments per year. With this strategy, you could pay off a five-year loan five months early.

Refinance Your Loan

Refinancing your current auto loan can save you money if you’re planning to refinance for a term no greater than what is remaining on your current loan, and you could qualify for a better interest rate than the one you have now. Check with your lender to make sure there’s no prepayment penalties because your current loan will have to be paid off before you refinance.

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About the Author

Cynthia Measom is a Texas-based writer specializing in finance, business, parenting and education. With almost a decade of online writing experience, her work has appeared on websites such as, The Bump and The Motley Fool. Measom received a Bachelor of Arts in English from the University of Texas at Austin.