Auto Loans 101: How to Get a Better Rate on Your Next Car

Car prices and loan rates have both climbed in recent years, making financing a bigger part of the total cost of a vehicle. A few steps before you visit the dealership can lower your rate and your payment.

1. Check your credit first

Auto lenders price loans heavily on credit score. Pull your reports, fix errors and, if possible, pay down card balances a month or two before you apply.

2. Get preapproved

Apply with a bank or credit union before shopping. Credit unions often offer some of the lowest auto rates. A preapproval gives you a rate to beat, and the dealer may match or undercut it. Multiple auto loan inquiries within a short window are generally treated as a single inquiry for scoring.

3. Negotiate the price, not the payment

Settle the out-the-door price of the car before discussing financing. Focusing on the monthly payment makes it easy to stretch the term and hide a higher price or rate.

4. Keep the term short

72- and 84-month loans lower payments but cost more interest and raise the risk of owing more than the car is worth. A term of 60 months or less is a healthier target.

5. Put money down

A down payment of 10% to 20% reduces the amount financed, can lower your rate and protects you against early depreciation.

6. Scrutinize add-ons

Extended warranties, GAP insurance and service packages are often marked up and rolled into the loan. You can decline them or buy them elsewhere for less.

The bottom line: arrive with a preapproval, negotiate the price first and choose the shortest term you can afford.

This guide is for general information only and is not financial advice. See our Disclaimer.