Buying a car is a big financial commitment — especially if you have to take on a car loan to make the purchase happen. The good news is you don’t have to be an accountant to make sure you’re getting the best auto financing agreement from your dealership or lender.
The vast majority of people need to take out a loan to cover the cost of buying a vehicle. Most buyers are unaware that they can negotiate the terms of their contract before they sign the dotted line. In this post, we’ll give you six ways you can get a lower interest rate on your car loan.
How to negotiate a low car loan interest rate:
- Make sure your credit is in good standing
- If you have poor credit, enlist a cosigner
- Negotiate on the price of the vehicle
- Do your research
- Stay away from high-interest rate loans
- Make a large down payment and secure a shorter term
- Bonus tip: Consider in-house financing
Make sure your credit is in good standing
Customers with excellent credit scores (780 and above) can access the best interest rates on the market when they apply for a loan. Anyone with a score below 680 will likely pay higher rates on a loan of the same size because they are deemed a riskier borrower by most lenders.
If you fall on the lower end of the scale, taking some time to improve your credit score can save you thousands of dollars in interest throughout the life of your car loan.
Request a copy of your credit report, fix any errors and identify areas where you can improve your debt management practices. A good place to start is making sure you pay your monthly bills on time and in-full. Your credit score is a measure of your reliability as a borrower and punctuality goes a long way here.
If you have poor credit, enlist a cosigner
If you need a car now but don’t have time to work on your credit, consider finding a trusted friend or family member to cosign your car loan. With a cosigner, you’re essentially borrowing their good credit to get approved for financing. This also means you will be able to access lower interest rates.
The downside of this plan is that you’re asking someone else to be responsible for your debt. If you default on your loan, your cosigner will be stuck footing the bill. Your friend or family member’s credit score will also be negatively affected if you can’t keep up with payments.
Negotiate on the price of the vehicle
Before you start negotiating the terms of your loan, try to get a bargain on the actual price of the car. A lower purchase price means taking out a smaller loan and paying less in interest. The sticker price isn’t always the end of the story and there’s nothing wrong with presenting a counter-offer.
Word to the wise: don’t just pull a number out of a hat. Find out what the vehicle you’re interested in is selling for elsewhere and have some proof to back-up your offer.
Every dealership is interested in making a sale. Reputable dealerships are interested in helping their customers find the right car at a price they can afford.
Do your research
Similar to the previous point, you should do your research before you start asking for a lower interest rate from your lender. When you know what kind of rates are out there, you can do a better job of negotiating.
Start by doing a quick Google search to find out what national lenders are charging for auto loans. Then, bring it closer to home by looking up interest rates from other local lenders, banks or credit unions. If the numbers aren’t clearly listed on their website you can call and ask for a quote — inquiring won’t affect your credit score.
Make a point of asking about the Annual Percentage Rate (APR) of their loans, instead of just the interest rate. The APR is a broader measure of the cost of a loan because it includes the interest rate and any fees associated with the loan.
Stay away from high-interest rate loans
Customers with an excellent credit score (more than 780) may qualify for a single-digit APR loan, while those with average credit will usually be able to access a loan with 10% APR.
If you have poor credit and are offered a loan with interest rates in excess of 13% APR, walk away. You will probably have a hard time making your monthly payments because you’ll be paying so much in interest and it will take longer to pay off the vehicle.
Secure a shorter term and make a large down payment
You should try to avoid taking on a loan with a long term. The lower monthly payments might seem attractive, but you end up paying more in interest the longer you’re locked into a loan. Car loan terms usually range from 12 to 72 months and you can save thousands of dollars in interest by opting for the shortest term you can afford.
If you can’t afford the full price of the car, but have some money to put towards a down payment you should do so. You will end up paying less in interest because the total amount you need to borrow will be lower.
Birchwood Credit Solutions offers flexible in-house financing and specializes in car loans for people with bad credit. Fill out our quick and easy online application today or get in touch to learn more about our services.