How to Negotiate a Low Rate on Your Car Loan

Shopping for a new car or truck isn’t always straightforward, especially if you’re financing the vehicle. Weighing the costs and benefits of a car in the short and long term requires careful research as to what monthly payments and interest rates are available to you from various lenders.

Car dealerships usually offer their own financing packages, but these are rarely as good as they appear. Although they may offer a low initial fee, some dealerships will allow you to take possession of the car before the lender approves the loan, meaning you could pay a higher monthly rate or interest amount than you initially thought.

You should also be wary of financing packages you negotiate with the dealer because of a finance reserve. This is when the lender allows the dealership to put a markup on the interest rate for their own profit as a reward for facilitating the loan. This commission puts the buyer at a disadvantage financially in the long term.

Auto loan rates are negotiable, especially if you can be flexible on the loan term and amount. Here’s how to get the lowest rates when buying a car.

Get a Shorter Repayment Term

Car repayment terms vary from 24 months to 84 months. Usually, very short car loans are for used cars where the buyer can put down a large down payment and can afford to make more significant monthly payments.

Since shorter repayment terms are less risky for lenders, they will usually have lower interest rates. This means that if you can afford to put a larger down payment on your vehicle, you’ll save thousands of dollars long-term by paying less in interest on your loan.

Look for a Lower Price

A larger loan amount is also a higher risk for lenders, so they will usually ask for higher interest rates to cover both the long-term administrative costs and the risk. Buying a cheaper car helps keep your loan rates as low as possible, which makes a huge difference if you’re on a tight monthly budget.

Putting down a larger down payment may also help you receive a lower interest rate. This is because reducing the total loan amount required decreases the risk to the lender. Over time, this reduces the total cost you pay for your car.

When it’s time to negotiate the terms of your car loan, keep in mind that interest rates on a brand new vehicle are typically lower than on a used car. On a new vehicle, it’s often possible to make a deal for zero percent financing, which means you don’t pay more than the agreed-upon sale price of the car despite having a loan.

Other variables also play a role, so focus on the sticker price and repayment term when shopping.

Improve Your Credit Score

Your credit score ranges from 300-850, with anything above 600 usually good enough for a car loan. However, your car loan interest rates will likely vary depending on how good your score is when a lender checks your credit report.

Although improving your credit score takes some time, waiting even a few months can make a difference. Going back to a lender after an adverse event has dropped off your credit report could save you money.

You can also improve your credit score by getting a loan that has a small savings account as collateral. Credit unions often make these loans available specifically to help customers rebuild their credit score.

Because everyone’s situation is different, the options available to you for rebuilding your score vary. If the rates and terms offered to you aren’t what you need, talk to your loan officer about ways to wait a few months and rebuild your credit.

low rate on car loan

Join a Credit Union

While you can choose to get your loan from a bank or credit union if your credit score is good, there are many reasons to opt for a credit union. Credit unions are nonprofit institutions run by an elected board, which makes them more responsive to member needs. Unlike a bank, a reputable credit union prioritizes members’ needs and strives to deliver the best rates possible.

T&I Credit Union serves the greater Detroit metro area. Our loan officers can work with you to make sure you understand all your financial options, whether you’re buying a car or attempting to rebuild your credit for future purchases.

To learn more about becoming a member at T&I Credit Union, give us a call at (248) 397-9571 and speak with a representative.

About Marsha Smith

Marsha Smith was born and raised in Ohio, where she obtained her Bachelor of Arts in Public Affairs. She is passionate about financial literacy and helping other young people navigate student loans, car payments, and buying a home.

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