How to Get the Best Deal When Financing a Car

How to Get the Best Deal When Financing a Car

1. Check Your Credit Score Before You Shop

Your credit score is one of the most important factors lenders use to determine your loan terms, including your interest rate. A higher score often means a lower rate, which can save you hundreds or even thousands of dollars over the life of the loan.

  • Good Credit Score: If you have a score of 700 or higher, you’ll likely qualify for competitive interest rates.
  • Fair Credit Score: Scores between 650-699 may still get you financing, but expect to pay a higher rate.
  • Poor Credit Score: A score below 650 may result in higher interest rates or difficulty securing financing at all.

Tip: Before you start shopping for a car, check your credit score for free through online tools or credit bureaus. If your score is lower than you’d like, consider taking steps to improve it, such as paying off credit card debt or disputing any errors on your credit report.


2. Set Your Budget and Stick to It

When financing a car, it’s important to determine how much you can afford to spend, taking into account both the price of the car and the monthly payment. Experts recommend that your car payment should not exceed 15% of your monthly take-home pay, with the total cost of the car (including interest, taxes, and fees) not exceeding 20%.

How to Set Your Budget:

  • Total Price: Include the cost of the car, sales tax, registration, and any additional fees.
  • Monthly Payment: Use an online car loan calculator to figure out what monthly payment fits within your budget based on the loan term and interest rate.

Tip: Avoid focusing solely on the monthly payment—dealerships sometimes structure deals with extended loan terms (60-72 months) to lower monthly payments, but this can lead to paying much more for the car in the long run due to higher interest costs.


3. Shop Around for Financing Options

One of the biggest mistakes car buyers make is relying solely on dealer financing without exploring other options. While dealers often offer convenient financing, they may not always have the best interest rates or loan terms.

Here’s where to shop around:

  • Banks and Credit Unions: Often offer competitive interest rates, especially if you have an existing relationship with them. Some credit unions even offer special loan rates for their members.
  • Online Lenders: Many online lenders can offer flexible loan terms and competitive rates. Make sure to check customer reviews and ensure the lender is reputable.
  • Dealership Financing: While dealers sometimes offer promotional rates (like 0% financing), these deals may come with restrictions or higher vehicle prices. Be sure to compare dealer financing with external options before committing.

Tip: Get pre-approved for a loan before visiting the dealership. This gives you an upper hand when negotiating and allows you to compare financing offers with the dealership’s terms.


4. Negotiate the Interest Rate

Once you’ve decided on a financing option, your next goal is to negotiate the best interest rate. The lower the rate, the less you’ll pay over the life of the loan. While many lenders offer fixed interest rates, it’s still possible to negotiate a lower rate, especially if you have a good credit score.

How to Negotiate the Interest Rate:

  • Know Your Credit Score: If your score is good, use it as leverage to ask for a lower rate.
  • Ask About Discounts: Some lenders offer discounts for automatic payments or loyalty programs. Ask about any available promotions.
  • Negotiate with the Dealer: If you’ve been pre-approved elsewhere, let the dealer know. They may offer to beat or match the offer to keep your business.

Tip: Even a small reduction in your interest rate can lead to significant savings over time, so don’t be afraid to negotiate for a better deal.