By Josh RosenbergRight off the bat ... try to stay away from traditional car dealership loans! Yep ...they're the most likely to put a much bigger dent in your wallet. Most car buyers don't realize that car dealers can not only pocket a nice profit on the car, but also ring up big extra profits on the financing. It's a double whammy on the unaware.
So, a smart buyer will be careful and informed. Sometimes a dealer may even negotiate down the sales price a little to seal the deal if he knows you're financing through them. Getting a buyer to agree to financing at a percentage point or two, or even three, above what you can get elsewhere can be their primary money winner for the deal.
In fact, when the car business is slow, it's not unusual to be able to negotiate a very good purchase price. But these "best deals" are only offered if you finance your loan through the dealer. In other words, they're sometimes willing to make nothing on the car itself because the profits on the loan make it more worth their while.
This is an important example of just how important it is to know the proper interest rates, according to your credit rating, that are available online before finalizing the transaction. In other words, look out!
Even the 0% loans back in the day were not a good deal. The problem was those deals were only offered if you financed through the dealer (even if you are lucky enough to have the very high credit score necessary to qualify). How can 0% be bad? Because usually you could only get it by choosing between that and a large discount of some kind.
For example, you'd be forced to choose between a 0% loan (and now just a lower interest rate) or a $3,000 price discount. You couldn't have both. Do the math. Your total payments will almost always be less by taking the discount and getting a traditional loan, often by a large amount. 0% loans may have sounded good, but they were just a way to get the buyer to sign the dotted line, and once again to the benefit of the dealer.
That said, we know the dealer loan is often the most convenient since you're usually right there already. And it is still possible to get a decent loan from a dealer (but very likely not the best), but you must be knowledgeable about the choices, know your credit score and have it with you at the closing to hold the dealer's feet to the fire.
So, it's just super important to your pocket book that you first research rates before going to the dealer (I'll show you how to do that in a moment). But first ...
It's also very important you know your credit score.
Know Your Credit Score
This is important because your interest rate should accurately reflect your credit history. A difference in just a few percentage points can cost you literally thousands of extra dollars needlessly over the life of your loan.
First, you need to know your credit score to verify that the interest rate being proposed to you isn't too high. And secondly, you need to look over your credit report to check for mistakes, which sadly happen way too often. I've seen even little mistakes knock off 100 points and more from someone's rating which they never even knew about, costing them bigtime on their loans ... and all so avoidable.
If you don't have one, I highly recommend you get one. Yes, they usually cost money but you can get one free at CreditWise to avoid a lot of hocus-pocus rate justifications from the dealer. CreditWise is part of CapitalOne but you do not need an account or credit card with them to get the free report. And no, requesting a credit report has no effect on your score.
And there are some other benefits as well. They will alert you about new inquiries and openings, delinquent accounts and balance changes. They'll contact you with any changes to your score, even small ones. For me, I've found this very assuring that nothing crazy is going on without my knowing it.
They also provide dark web surveillance and social security number alerts. If your social security number or email address is found on the dark web (unsafe sites, hacking forums, and phony digital marketplaces), they'll let you know. It's really an excellent service.
Here's How To Get The Lowest Loan Offers
Fortunately, you can do it online from the comfort of your home and you don't have to fill out the same forms at many different websites. There's another free service that will do it for you so you just have to give your information once. Even that is simpler than it may sound. It's at MyAutoLoan.com.
Again, you will get free, no-obligation rate quotes from the lowest rate providers in your specific credit score range within minutes. Then you just compare and choose.
Do You Have Bad Credit?
The good news here is that MyAutoLoan.com also works with specialty lenders for those with less than perfect credit, even bad credit.
And please remember, whether good credit or bad, to do this before you actually buy the car. This way you'll be all set when you're ready to make your final vehicle decision, freeing you from the higher rate dealer financing.
Other Good Loan Sources
Another usually excellent loan source are local Credit Unions. Their rates can sometimes get close to online lenders and they're almost always better than traditional banks. Again, no fees and no dealer participation means your monthly payments can be competitive.
And most Credit Unions will allow you to join for under $10, so do a web search in your area to see what's available.
Also, don't forget your Home Equity Loan if you have one. Those rates are usually very good in comparison.
If none of these have worked for you, your next best bet is your own bank. Their loan rates will likely be a little higher than the others, but because you're a customer there already and have some sort of known history with them (checking or savings account), you've got an edge there opposed to someone walking in off the street. Again, there's no extra fees or points being pocketed by a dealer here.
So, do some shopping out there. Depending on the loan amount, being a smart loan shopper will save you at least hundreds, and more likely thousands of dollars.
Hope this has been helpful and happy money saving.
All the best,
Josh