When it comes to buying a car, way too many Americans are likely to just get a loan from a dealer. And that’s a very bad idea.
Really, it’s best if you don’t finance your car at all. Paying cash will net you a better deal. And you’ll skip paying interest on financing.
With that said, sometimes you just have to finance at least part of your car purchase. You need a vehicle to get to work or haul your kids around. But you don’t have time to save up to purchase the vehicle in cash.
It’s understandable and sometimes unavoidable. But just because you have to finance your car doesn’t mean you should go with whatever the dealer offers. As with other types of financing, it’s a good idea to shop around for a car loan. Luckily, the internet makes that easier than ever!
Here, we’re going to give you the down and dirty on where to find the best auto loan rates. But before we launch into that, let’s talk about how to set yourself up ahead of time to get the best possible rates.
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Setting Yourself Up for Success
With any type of financing, you can take steps ahead of time to make sure you’re getting the best deal possible. Most consumers know this is true when they’re shopping around for a mortgage. But they may not take the same kind of time to set themselves up for auto loan success.
But even some small changes can save you some serious cash on your auto loan. Don’t believe me? Here’s how the math shakes out for just one example, using our Simple Loan Payment Calculator.
Let’s say you need $10,000 in financing. You’re planning to finance the vehicle over four years. One lender offers you a rate of 5.5%, and other offers you a rate of 7.5%.
On the 5.5% loan, your monthly payment will be $232.56. On the 7.5% loan, your payment will be $241.79.
That doesn’t seem like a lot. I mean, $9 a month won’t exactly break the bank. But over time, the difference becomes clearer. You’ll pay a total of $1,163 in interest on the first loan. One the second loan, you’ll pay $1,606. Saving almost $500 is totally worth some time to take the following steps! (I used this calculator to run these numbers.)
So what can you do to lower your auto loan rate? Take these steps before you buy a car:
1. Check and Improve Your Credit
Before you start shopping for an auto loan, take the time to check your credit score. You can do it for free pretty easily. If you have a credit card, your credit card company may offer free credit scores. Or you might check out a site like Credit Sesame for a fairly accurate score estimate.
If your score is below the “excellent” range of 760+, you have room for improvement. Maybe you don’t have time to take months for improving your score. But chances are you can take a couple of simple steps to boost your score within a month or two.
The most common ways to quickly boost your credit score include:
- Paying down revolving debts: Your credit score is largely based on your debt-to-credit ratio. This is how much debt you’re carrying versus how much credit you have available. Paying down revolving debt can improve this ratio, boosting your score fairly quickly.
- Ask for credit limit increases: Another way to improve your debt-to-credit ratio is to ask for a credit limit increase on an existing account. This can result in a hard pull on your credit report, though, which can decrease your score temporarily. It’s best to take this step a few months before you shop for an auto loan. And be strategic. Only ask for a limit increase if you have a good payment history and decent credit, which makes lenders more likely to say yes.
- Correct errors on your report: Many credit reports contain errors, and these can lower your score. If your report is showing accounts that don’t belong to you, get those errors fixed as soon as possible.
- Ask for a goodwill adjustment: Late payments in your credit history can seriously ding your credit score. Luckily, you can sometimes get these late payments erased. This is especially true if you’ve generally made on-time payments but have one or two anomalous late payments. Here’s how to boost your score with goodwill adjustments.
- Be on your best behavior: While you’re in the process of getting a car loan, be on your best credit behavior. This means avoiding running up credit card balances, making payments on time, and not applying for any other new credit.
2. Save Up for a Down Payment
The amount of your down payment can make a big difference in your auto loan’s rate. So the more money you can put down, the better. If you can’t put much down right now, do your best to sock away some savings quickly.
You might take on a second temporary job, sell some stuff, or put in extra hours at work. Another option is to just make your current vehicle last until you can save a significant down payment for your next car loan. Trust me, waiting a few extra months will be worth it when you save a ton on your car loan!
3. Shop Around for Your Loan
Finally, we’re getting to the reason we wrote this article in the first place. Once you’ve followed the first two steps, it’s time to actually get a car loan. And to get the absolute best rate, you’ll need to shop around for this loan.
This may mean checking out your local credit unions and banks. Or you might use the tools we’ll describe below to consolidate your online shopping.
Either way, be sure that you do your shopping within a two-week time frame. This will allow FICO and other credit scoring algorithms to count all of your shopping around into a single hard pull on your credit report. So your score will take a small, temporary hit. But it’ll be smaller than if you drag your credit applications out over several weeks.
As you’re shopping around, experiment with different scenarios. For instance, could you get better financing by putting another $500 towards the down payment? Does it make sense to shop for a newer, lower mileage vehicle from a less expensive make and model? Looking at a few different scenarios will help you find the best possible financing.
Where to Find the Best Auto Loan Rates
Shopping around for auto loan rates is easier than ever with the internet. Loan aggregators like Lending Tree make it easy to look at potential rates from several lenders at once. Here’s where you should look for the best auto loan rates:
1. Your Local Credit Union
Credit unions are an often-overlooked source of funding for vehicle and other loans. Credit unions are an especially good option if you don’t have the best credit. Sometimes they’ll overlook a bad credit score in favor of other evidence that you can manage your money well.
That’s the good news. The bad news is that applying for a loan from a credit union may take a little more time. You might have to actually talk to someone on the phone or in person to get your loan offer. This isn’t always the case. But it’s more likely.
However, this can work to your advantage if you do want to take time to explain your credit situation in more depth. A loan officer at a credit union often has more leeway to make favorable decisions based on a personal conversation–rather than just a set list of personal data.
2. Your Own Bank
Shopping for credit with your own bank, especially if you have an existing relationship, is always a good option. Banks–especially large ones–are more constrained with their lending decisions than credit unions. But they may still take into account your banking history when deciding on your loan offer. And that can be a good thing.
The LendingTree site is a good place to get an aggregate of car loan offers. The site actually pushes your information out to a variety of lenders. Some are larger, and some are ones you may never have heard of. You can view your potential rates and monthly payments, and go from there.
With LendingTree, you’ll have to put in the information about the loan you want first. It’ll ask you about your down payment and total loan amount, as well as the make and model of car you’re shopping for. You’ll also need to know what term you’re looking for. But once you get to the offers page, you can look at different loan terms, as well.
You can sort the offers by APR or loan term. And you’ll see your estimated payments. You’ll get an email from the featured offers almost immediately, and you’ll probably get a follow-up phone call.
These offers are based on a soft credit pull. So they could be fairly accurate. However, once the lender pulls your full credit report based on a full application, the offer may change or be revoked altogether. This is just something to keep in mind when using LendingTree.
Ultimately, it’s a good place to get a general idea of the financing for which you might qualify. And you might discover new potential lenders, including local dealerships, to check out. But you’ll still have to connect with each lender individually to get an actual loan offer before you go car shopping.
This site specifically searches for dealer financing in your area. The application process is quick and easy, but it doesn’t spit out an answer immediately. Instead, you get an email later with the potential lender information.
For me, CarsDirect turned up some of the same results as LendingTree. But it could be an option for finding good dealer financing. (Which can, in fact, be the best offer, sometimes!) Plus, you can also use it to actually search for vehicles in your area.
But What’s a Good Rate?
While you’re doing all this shopping around, it may be helpful to have an earmark for auto loan rates. That way you know whether you’re getting a good deal or not. Digging up average auto loan rates is a bit more difficult than digging up average mortgage rates.
Check out the table below for competitive rates on auto purchases:
Get free auto loan financing quotes online Get multiple online quotes for free online in just minutes. All credit levels accepted.
See dealer pricing online No need to drive from dealer to dealer. See pricing online for free on any car, new or used.