Updated: 11/1/2011 2:27 PM ET|
10 steps to the best car loan
re you feeling like a savvy negotiator because you've persuaded a dealer to sell you the car you want at the price you want? Good for you -- but you're only halfway done.
Negotiating a great price on a new car is just half the battle. You also need a great car loan to make it a great deal.
Here are 10 tips to help you get the best auto loan:
1. Shop the loan separately from the car. Before starting negotiations on the exact car and price, begin the loan application process with a credit union, a bank, a well-respected online lender or even your auto insurance company.
"Generally, we've seen that online banks have been the best," says Anthony Giorgianni, the associate finance editor of the Consumer Reports Money Adviser newsletter in Yonkers, N.Y. "The little banks might be very competitive. A lot of them didn't get caught up in the credit crunch."
And credit unions' rates tend to be about 1 to 1.5 percentage points lower than banks', says Jim Hanson, a vice president at the Credit Union National Association in Madison, Wis.
You can get prequalification for a loan, which would enable you to go to the dealer with a blank check -- good up to a specified amount, says Phil Reed, the senior consumer-advice editor for Edmunds.com. Once you have a solid, written contract, only then ask the dealer if it can beat the financing deal you already have.
2. Limit your loan shopping to a two-week period. Every time you apply for a loan -- whether you are approved, whether you use it -- your credit scores go down, making it slightly more difficult to get a prime-rate loan. But if you make all of your applications within two weeks, they count as only one inquiry.
3. Get familiar with your own credit history. Get free copies of your credit reports from Equifax, Experian and TransUnion, the three major U.S. credit reporting companies, at AnnualCreditReport.com. If you want to learn your exact scores, you can order them for small fees from the companies' websites. The scores you buy are probably not the same ones your lender uses, but they should be close.
With an auto loan, you have a little more wiggle room in terms of your credit scores. "What's considered good for a car loan will be a little lower than what's good for a mortgage," says Gail Hillebrand, a senior attorney with the San Francisco office of Consumers Union, an advocacy group.
4. Shop the total loan amount, not the monthly payment. The only time you should consider the monthly payment is when you privately calculate how much you want to spend for your car. After that, don't discuss monthly payments. Some lenders may focus on the payments to induce you to borrow more money by extending the number of months you pay. That way they make more in interest, and you have to drive your aging car longer.
5. Don't assume the best. Lenders aren't obligated to offer you the best rate for which you qualify. In 2007, car dealers marked up loans by an average 1.8 percentage points on used cars and 0.6 point on new ones, according to Josh Frank, a senior researcher for the Center for Responsible Lending in Durham, N.C.
Let the lender know you're shopping around or already have another offer. You're more likely to see a better rate.
6. Get the right tools. What's better for you -- low dealer financing or a cash rebate? You can get a quick answer to that by using Bankrate's rebate calculator. Within a few seconds, you'll know to the penny which is the better deal. Usually, it's the cash, Giorgianni says.
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