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ACU Blog  / What You're Missing in Your Search for the Best Car Loan Rates
5 May 2020 / 3 minute read

What You're Missing in Your Search for the Best Car Loan Rates

While car loan rates are the biggest cost of most car loans, they aren't the only cost. Make sure you don't miss these tips for finding the best car loan.
Words Allegiance Credit Union
5 May 2020
3 minute read
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Here's What Will Really Help You Find the Best Car Loan and Car Loan Rates

If you're shopping for a car, chances are you're also shopping for a car loan. The interest rate on your car loan has one of the biggest impacts on the overall cost of your car. While the dealership may advertise amazing rates that seem impossible to beat, the truth is you can get a far better rate if you know how to shop. Here are some surprising secrets that will help you get a great rate on your car loan.

Find the Car Loan Separate from the Car

In a typical car purchase, the buyer will head to the dealership in order to find a car. Once they find one they like, they will haggle with the dealer to work out a loan, letting them drive away in their new car. Yet this common process could actually be a costly mistake.

When you apply for a loan at a dealership, the dealership does not actually finance the loan. Instead, they send the application to a lender who approves or denies it. If it is approved, the lender will give the loan an interest rate. The dealer then may increase that interest rate before presenting the loan back to you, allowing them to pocket some of the income from the loan.

Instead of shopping for a car first, consider shopping for a car loan first, or at least separately. When you get your loan directly from the lender, you skip the middleman. You won't pay extra in order to cover the dealer's commission or fee.

Buying the car loan separately from the car also lets you comparison shop. You can shop for car loans online to see what rates are available, then talk to your bank or credit union to see if they will match. You may even get a better rate with the bank or lender if you set up automatic payments.

Finally, shopping for financing separately lets you walk into the dealership with pre-approval in hand. This helps you stick within your budget and negotiate more effectively as you work on the price of the vehicle.

Research Your Credit History (and Clean It Up to Get the Best Car Loan Rate Possible)

If you want to get the best car loan rates, make sure you look like an appealing borrower. The most important factor a lender will look at is your credit rating. Before you start shopping for a car loan, pull your credit history. If you see any problems or errors, take measures to correct them. Some steps that can make a big difference include:

  •  Lowering your debt-to-income ratio by paying down debt
  •  Creating a bigger gap between line balances and limits
  •  Having any errors removed from the credit history

After taking these steps, wait 30 days or longer, and watch as your credit rating improves. A clean, solid credit history will earn you the most competitive loan rates.

Download Car Buying Ebook Graphic

Know the Loan Total – Your Car Loan Rate Isn't the Only Key Factor

While car loan rates are the biggest cost of most car loans, they aren't the only cost. As you compare loans and strive to find the right one to fit your budget, make sure you consider all of the costs. Some of these include:

  • Tax, title and license fees – These are the fees that come with your vehicle. The local taxes, costs to transfer the title, and other county or state fees associated with vehicle purchases are often rolled into your loan amount.
  • Origination fees – These are the fees the lender charges upfront for making your loan. It's a commission the lender earns for processing your application. When interest rates are quite low, origination fees give the lender a little bit more income from the sale.
  • Other lender fees – Lender fees can go by many different names, but they all add up to the same thing. These fees add to the total cost of your loan.

Remember, dealers often lure borrowers in with crazy low interest rates and even zero-percent interest offers, but there are other ways they make their money. Lenders are in business to make money, so low or zero-percent interest offers often have other fees. Always find out the total cost.

How can you see the total cost of the loan? Because of the Truth in Lending Act, your lender must disclose not only the interest information, but also the fees on your loan. Take a close look at this document as you compare loans, and make sure you're not being swayed by low interest rates, only to be charged high fees.

A car loan is a long-term financial commitment. Before you sign on the dotted line for one, make sure you have the best possible rate. By doing your research ahead of time, you can find an affordable loan on the car you love.

For more details on how to find the best car loan rates and more tips to save you time and money on your car buying journey, review our "Car Loans 101: Car Buying Made Easy" complete guide!