Higher credit scores equate to lower auto loan rates.
Review your credit report and improve your credit score before applying for financing.
Prequalify with at least three lenders before you head to the dealership.
Negotiating a great sale price is just half the battle when shopping for a car. Also, compare auto loan rates to make it a great deal. Loans vary by lender, your credit and regional factors. Prequalifying with at least three lenders is the best way to get a car loan with favorable terms, potentially saving you thousands in interest.
Your credit is critical. A score in the good to excellent range -- typically 670 or higher -- will help you secure the best offers, but there are other strategies that can help if your score is lower than that.
How to get the best auto loan rates
Preparation can save you serious cash. If you arrive at the dealership with a good financing offer in hand, the salesperson will have to beat it if they want to finance your loan. In this way, consider dealership financing a backup option in your quest for the lowest interest rate possible.
1. Determine your budget
- Decide what you can afford before applying for a loan.
- Review your current finances. Lenders consider your debt-to-income (DTI) ratio, income and credit score when determining whether you qualify for an auto loan.
- Consider the full cost of ownership. Aim to spend no more than 20 percent of your monthly budget on a car -- including expenses for gas, regular maintenance and car insurance.
- Research the market. New and used car prices have increased over the last several years. Compare dealerships in your area, online options and sites like Edmunds and Kelley Blue Book for car price and reliability estimates.
- Save for a down payment. A large down payment will mean borrowing less, and less money borrowed means a lower monthly payment and possibly a lower rate.
- Request multiple trade-in quotes. Shop your trade-in with multiple dealers to get the best price and increase your total down payment.
- Check the total loan cost. Lower monthly payments are enticing, but they come with longer repayment terms that could cost you more over the life of the loan because of the additional interest payments.
2. Check your credit
Once you have a firm grasp on your budget, consider how your credit score will play into the ideal monthly payment you calculated. Your credit score is one of the most significant factors determining your annual percentage rate (APR). Check your credit score to get started.