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5 Tips to Getting the Best Rates

Getting a low APR or interest rate can save you a lot money over the course of your loan's term and will help you pay off your loan in less time. Before applying for an auto loan, take time to get familiar with what factors affect your rate. Here are 5 easy tips to help you find the best rates.

1. 1. Compare Rates Before You Visit the Dealership

   Before setting foot in a dealership, you should compare rates from multiple lending institutions first. Researching rates from several different banks or credit unions will give you an idea of the total cost of a loan over several years. If possible, get pre-approved for a loan to take some pressure off of you when it comes to negotiating the final price of the vehicle.

2. 2. Improve Your Credit Score

   Like it or not, your credit score is the number one factor that determines your APR and interest rates. The higher your credit score is, the lower your interest rates will be.

   Prior to obtaining a new car loan, pay off any existing debts. It will improve your credit score and your debt-to-income ratio, making you a more attractive client to lenders.

   Before you let lenders look up your credit report, you should obtain a copy yourself to avoid surprises. Recently, the federal government mandated that each citizen is entitled to a free credit report once a year from each of the three major credit agencies (TransUnion, Experian, and Equifax). Make sure you order your credit report from annualcreditreport.com, the only site authorized under federal law.

3. 3. Demonstrate Your Ability to Pay

   Besides your credit score, lenders will look at a few other factors to determine your overall ability to re-pay the loan. They will need to verify your income and examine your debt-to-income ratio, which is the total amount of money you owe vs. the total amount you make on an annual basis. The better your ratio, the better your rates will be.

4. 4. Choose a Shorter Loan Term

   The term of the loan significantly affects the APR and the cost of your monthly payments. The shorter the loan term, the lower your interest rate will be because you are expected to pay back the loan in less time, but your monthly payments will be higher.

   If you can afford to, choose a loan term of 48 months or less. It will lower the total cost of the loan and save you money in the long run.

5. 5. Pay More Upfront

   The more money you have available to pay upfront, the better your interest rates will be. Make at least a 20% down payment to cover depreciation and keep your monthly payments lower.

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