A good loan is the bedrock of a solid car deal. But buyers in a rush often don’t shop around for the best loan. If you put the car ahead of the financing, you could wind up paying hundreds of dollars too much in interest.
Shopping for the best auto loan is a bit like car shopping itself: Let market competition get you the best deal.
- Check your credit score and report. Dispute any errors in your credit report.
- Apply for a preapproved loan with at least three lenders. This counts as one hard credit inquiry if done within a short period, generally 14 to 45 days.
- Use an auto loan calculator to estimate your payment, then compare offers so you can find the best rate and terms.
Why getting preapproved matters
Getting preapproved not only shows you what interest rate you qualify for, but also serves as self-defense during negotiations.
At the dealership, the salesperson will likely ask what monthly car payment you want. But this makes it easy to hide the total price you’d pay for the car. With a preapproved loan offer, you can say you’re a cash buyer and that you want to negotiate the price of the car.
Now, the fun part — get an even better rate: Once the purchase price is set, let the finance manager try to beat your best loan offer with dealership financing. Dealers have access to loans from the automakers’ finance companies that can undercut other lenders. Just make sure the term of the loan — the number of months you have to pay it off — is the same as your preapproved offer.