When purchasing a new car through finance it can make a huge difference to the total amount you pay for the car, once the interest rate is factored in. Spending some time in advance researching the best rates will increase your negotiating power and possibly save you hundreds in unnecessary interest payments. However, as with all things connected to borrowing, the most crucial factor in obtaining the best auto loan rate is your credit score.
Knowing your credit score in advance will take the guess work out of the process, and if you know that your FICO score is very good, or excellent, you will qualify for the best rates. If you are prepared to offer the car as collateral against the loan, then you will also be eligible for a lower interest rate as secured loans cost less to service than unsecured loans, as there is less risk involved for the lender.
The first step to take is to research online for the best auto loan rates which are available to match your credit score. You may decide to approach your own bank or credit union for an auto loan, or a different lender, but you should apply for a pre-approved loan before you venture into the auto dealership, as they will obviously want you to use their finance package. This means you may well be able to negotiate a lower rate than the one offered by a financial institution.
By simply walking into a dealership and taking the finance they offer, you will always end up paying more than you need. However if you walk in knowledgeable about the various rates on offer, and with a pre approved auto loan, the negotiating power is yours. Always base your negotiations on the purchase price of the vehicle and not on the amount you can afford to pay in monthly instalments.
Don’t be lured into thinking that a loan taken over a longer term is the better deal, as the car will depreciate in value and you could well end up paying more in loan payments than the re sale value of the car.
The size of the down payment you can make will also influence the interest rate you are offered. The higher your down payment the better the rate should be. However if you are making a substantial down payment you would probably be better obtaining an unsecured loan, as you have far more to lose with a secured loan if you fail to make a payment, as a secured loan gives the lender the legal right to repossess the vehicle.
Although you want to negotiate the best interest rate possible for your auto loan, always bear in mind that the shorter the term of the loan is, the better financial sense it makes. If you negotiate well you could end up with the best possible rate on the terms which suit you.