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- To get the best rate, start by understanding your credit situation and take steps to improve it.
- You can get a lower interest rate on a car loan from an applicant with a good credit history.
- Depositing more money as a prepayment on a loan often gives you a higher rate.
- Read more about Insider loan coverage here.
Whether you’re looking for a new or used car, you want the best car loan deal possible and maximize your dollars. Fortunately, getting a good interest rate only requires careful research and a willingness to negotiate terms.
Here are five tips to help you get the lowest interest rate on your car loan.
Understand your credit situation and what you can afford
Your credit rating plays a huge role in the interest rate you receive from the lender. Borrower with excellent credit can often get a rate of 10 percentage points or more than a rate with bad credit.
If your loan is at the bottom of the scale, you can benefit from spending some time improving it before taking out a loan. TO improve your credit rating, try to keep your credit utilization rate – the percentage of your total credit that you use – at 30% or less, and put in place a system to pay bills on time.
If you need access to your credit report, you can get it for free from any of the three major credit bureaus at Annualcreditreport.com weekly until April 20, 2022. This report will contain information about your payments and credit history, although it will not include your credit rating. Viewing your credit report can help you spot mistakes and find areas for improvement.
You can get your bill for free on your credit card statement or online account. You can also buy it from a credit bureau.
Buy from different lenders
Many lenders will show you your pre-approved rates and conditions online after you fill out the form and they start attracting a soft credit card. Taking the time to get quotes from different lenders, both national and local, will give you more negotiating power because you will understand the current rates with your specific credit rating for the vehicle you are interested in.
Do not count only the stated interest rate; Calculate the total interest you will pay over the life of the loan based on the total loan amount and the length of the term.
While this may sound simple, a lower total price will reduce the amount of interest you will pay on the loan.
You can lower your selling price by ditching add-ons such as seat heaters and rear-seat entertainment systems. You can also get a lower interest rate on a new car than on a used car, as used cars often have more mileage, expired warranties, and increased wear and tear. Lenders factor in the increased risk of mechanical failure in the interest rate.
If your credit is not in the best shape, you can improve your rate by asking someone with good credit to apply for your loan. When you hire a job seeker, they essentially allow you to “borrow” their credit rating to help you get approved for a loan or get a lower rate.
However, your partner will be liable for your debt if you do not pay off your loan, and their credit rating will have a negative impact if you cannot handle your payments.
Make a larger down payment
While spending all the money on a new or used car is usually not possible, it is in your best interest to make the largest down payment possible. The larger your down payment, the less risk you pose to the lender and the lower the interest rate they are likely to offer you. You will also pay less general interest because the total loan amount will be lower.
Shorten your maturity
You should try to take on the shortest maturity you can afford from your budget because you are likely to get a lower interest rate. You will pay less per month with a longer maturity, which may seem attractive, but keep in mind that you will be moving away from general interest more because you are spreading payments over a longer period.
The best way to get a low interest rate on your car loan is to research and understand which terms and conditions make the most sense given your budget and credit history.