How Auto Loans Work and Mistakes to Avoid

Alternate title: How to Shop and Get the Best Auto Loan - And a Few Car Buying Tips and Tricks - Consumer Information

Alternate title: Top 10 Tips and Tricks for Getting the Best Auto Loan Rate in 2017

How to get a car loan
How to get a car loan

Car Buying Tips...

And best way on how to get the best auto loan rates.
And best way on how to get the best auto loan rates. | Source

News You Can Use

Both new and used car sales continue to rise. Along with it is the demand for car loans. As demand increases, so does the shenanigans and other nonsense by dealership finance departments and other lenders.

This page will give you what you need to know about getting the best auto loan rate possible. Failing that, it will at least keep you from getting the worst.

How to Get a Car Loan...

Clean Up Those Credit Reports

First thing you need to do is get copies of your credit reports. You are entitled to one free report a year form each of the three major reporting agencies. The most legitimate website to get them from is www.annualcreditreport.com. They will make you work for it by subjecting you to a bunch of sales pitches for their non-free products, but this is the site consumer groups and others recommend.

Review your reports. If you find any errors negatively impacting your credit score, you will have to jump through whatever hoops are necessary to get them fixed. Most loan officers don't even seriously bother to look at the reports, they just look at the credit score. Have the wrong credit score and you may not even be able to get an auto loan. Have an unfairly low credit score, and you will be paying hundreds and possibly even thousands more in interest over the course of your car loan; not to mention you will be subjected to higher monthly payments.

It is imperative your credit score be as high as possible. One doesn't have to be a rocket surgeon to know the higher your credit score, the lower the interest rate on your auto loan will be. In fact, reading this Credit Score Guide for Beginners would probably be your best bet before even continuing with the rest of this page.

Epic Fail!

Don't do this! Car dealerships and used car lots are usually the absolute worst place to get an auto loan.
Don't do this! Car dealerships and used car lots are usually the absolute worst place to get an auto loan. | Source

Avoid Auto Dealer Financing

Seriously, you might as well go to one of those loan shark outfits you see at the mini-malls. The auto dealers will use every trick in the book against you. They make as much money on the financing as they do on the car sale itself. More often than not, whatever interest rate is initially promised invariably runs into a "problem"; and they will insist they can only do the financing at the higher interest rate and higher monthly payments. It's even been reported they will sometimes pull this stunt after the car is already sitting in your driveway.

As a side note, by all means ask about their zero financing they constantly advertise. Problem is, somehow nobody every seems to qualify for it... If you do happen to be one of the lucky few, well and good. But don't count on it.

And while we're at it... When you have decided to visit a particular dealership or used car lot, it wouldn't hurt to first check them out at RipOffReport and the BBB.

Where to Get an Auto Loan...

With any luck, your existing financial institution has already poked you with a stick as to trying to get you to get an auto loan with them.
With any luck, your existing financial institution has already poked you with a stick as to trying to get you to get an auto loan with them. | Source

Best Way to Get a Car Loan Is Your Financial Institution...

Your first resource should be your existing bank or credit union. Presumably you have been with them for awhile and are considered to be a good customer. What you would really like to accomplish is to get a pre-approved auto loan from them; succeed and your problem is solved.

Do not mention your pre-approved loan to the car dealer prior to closing the deal on your car purchase price. Otherwise they will raise the car price to offset the money they are not going to make from the financing.

If your financial institution seems somewhat reluctant about the pre-approval idea, don't push it. Stay lovable and don't burn that bridge just yet. Ask about and pave the way to apply for an auto loan with them after you have negotiated the price for the car.

Shop Around...

Did your existing financial institution fail to come through? Fine; once you've got the car situation taken care of, your next project will be to find a better place to do your banking business.

Give www.bankrate.com your regards. Select "auto" from the menu at the top of the screen. Use their search feature to see what the best auto loan rates and conditions are, etc. Don't actually make an application just yet.

Check out your local banks and credit unions. Visit their websites. See what their rates, fees, and conditions are. Again, don't actually apply.

There are also some worthy exclusively-internet entities out there who do car loans. Just be sure to do your homework first, so you don't get tangled-up with the wrong one.

Network! By all means ask friends, neighbors, co-workers, etc. for recommendations as to where to get the best car loan. Applying for an auto loan at a place where you can use an existing good customer as a reference certainly won't hurt...

Also be attuned to what people say as to auto loan places to avoid.

How to Shop for an Auto Loan...

This is all a pain in the neck, but even a 1% loan rate savings can add up to a significant amount of money over time. Let's hope your existing bank or credit union came through, so you can avoid all this.
This is all a pain in the neck, but even a 1% loan rate savings can add up to a significant amount of money over time. Let's hope your existing bank or credit union came through, so you can avoid all this. | Source

Apply for the Loan

Well, you've done your homework. Time to apply for the loan.

Pick and rank your best five candidates from your research. Work your way down the list.

In some cases you will have the option to apply in person or via their website. Put some thought into what would work best for you in that particular situation.

Do make all your applications within a 30-day time frame. Multiple loan application inquires will reduce your credit score. But if you make all your applications within a 30-day period, it will be categorized as only one inquiry by the credit reporting agencies.

Summary

The above information should work equally well as to getting the best motorcycle, boat, or even airplane loan rates. However, if the boat or airplane is over a 100K, then you can probably afford to get a financial adviser involved. Preferably one with lending institution connections.

Yes, getting the best auto, truck, or SUV loan rates can be a lot of work and a pain in general. The more effort you put in to it, the more money you can save. One thing you can do is to make the project an iterative process, i.e., don't try to do it all at once. Just do one or two aspects of it a day. It will be done before you know it.

Buying a New Car...

A quick note, tip, trick.

There are reports saying buyers can get a better price through the website than through going to the car lot. There may even be a choice of websites, i.e., manufacturer website vs. dealership website.

Every manufacturer does things their own way. As an example, the manufacturer website may simply refer you to the appropriate dealership website. Or not. Things are always changing.

It should also be noted more and more dealerships are directly owned by the manufacturer.

Buying a Used Car...

A quick note, tip, trick.

When a dealership takes a car in trade-in, one of two things happens to it...

  • If the dealership thinks it's a good car which will outlast whatever their warranty program is and beyond; they will give it a tune-up, detail it, and put it in their used car section.
  • If they don't think it's such a good car, they'll sell it off at a wholesaler's auction. And it ends up in some used car lot.

What is the significance of this to the used car buyer?

  • The better cared-for, more reliable cars are to be found in dealership used car sections.
  • The more tired, more riskier cars are generally at places exclusively selling used cars.

More by this Author


Comments 3 comments

p10kabhijita profile image

p10kabhijita 4 years ago from India

I am gonna keep this in my bookmarks. Will need it when I am ready to buy a car. Thanks for sharing this info. Voted up :)


Neil Brannan 13 months ago

This definitely is a hugely helpful post. Getting a car loan can be a tedious task if not done properly. I was planning to buy a new car and had gone through some auto loan rates namely from Aspire FCU(New Jersey). It looked interesting but Googled to find out if I could get a better one and ended up here. Maybe, I'll have to start over again.


Daniel Bryan 3 months ago

Credit report is very important in getting loan from financial institution. A good credit report can help you to get maximum fund.

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working