Before entering a dealership to purchase a car, consumers need to make sure they get a great loan elsewhere, because the terms offered by the dealers are almost always less favorable than those offered by banks or other financial institutions.
Check Your Credit Report
In order to get a great loan, the first thing that car buyers have to do is check their credit reports. They can do this by visiting the website annualcreditreport.com, that is run by the federal government and provides consumers with copies of their credit score. If a consumer finds mistakes in their credit history, they should report them to one of the following credit reporting agencies: Experian, Equifax and TransUnion. Errors in a driver’s credit history can prevent them from getting a car loan with low interest rates.
The next step that car buyers should take is to shop around. Just like shopping around for a better deal on their new car, they should shop around for better rates on their car loan. Browsing websites of different banks and credit unions to see which one offers the most favorable terms doesn’t take a lot of time and effort, but can help consumers save a lot of money. Most car buyers choose to get a loan from their own banks or credit unions, since financial institutions offer good terms to loyal customers, but it can never hurt to see what the competition offers.
Don’t Focus on the Monthly Payments
When applying for a car loan, it’s important to pay attention to the total cost of the loan, instead of focusing on the monthly payments. A loan with low monthly payments can seem attractive, but it can costs consumers more in the long run, since lower payments usually translate into higher interest rates, raising the overall cost of the loan. That is why consumers should pay attention to the annual percentage rate, rather than the amount of the payments that they have to make each month.
Avoid Loans Offered by Dealerships
When it comes to where the best place to get a good car loan are, it’s usually local credit unions and local banks, rather than car dealerships. The loans offered by dealers usually have higher interest rates, because they are basically the middle man for a bank or some other financial institution, which is why they have to mark up their loans.
As far as loan term is concerned, car shoppers are recommended to get the shortest loan they can afford, because the longer the term, the higher the loan’s total cost. The optimal loan term is considered to be between 36 and 48 months.
In a word, getting a good car loan is not that difficult, but car buyers do need to take their time and do their homework before applying for one. They have to avoid the most common mistakes that consumers make when applying for a loan, do their research, compare rates and make sure their credit report is always up to date.