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7 Tips to Get the Perfect Car Loan
Hopping in the driver’s seat of a new (or new-to-you) car is a dream for most of us. But you may want to pump the brakes before hitting the car lot, because educating yourself on all your financing options should always be step one.
Before you take a test drive, it’s important to follow these seven steps to get the best loan for you and your finances.
1. Understand Your Credit Score
First and foremost, you want to know your credit score. As with any big purchase, your credit score is key. It will determine your interest rate, the length of your loan and monthly payment.
To check your credit score, you can visit AnnualCreditReport.com. The good news is you’re allowed one free copy of your credit report every 12 months from each reporting company and checking it yourself won’t impact your credit. But keep in mind, once you start shopping for loans, external credit checks can hurt your score.
Hot tip: Do all of your loan shopping in a two-week period. By limiting the application process to two weeks, external credit checks will be recognized as one hit instead of multiple hits which can save points on your score.
2. Fixing Your Credit & First-time Borrowers
If your credit score isn’t quite where you’d like, there are some steps you can take to improve it.
Start by learning your revolving debt utilization ratio. Ideally, you only use about 35 percent of your available credit. For example, if you have $10,000 available credit, you only charge about $3,500. To improve your score, you can pay your credit cards down to get closer to this ratio. As you pay cards off, keep them open until after you apply for the loan. By waiting to close the card, you’ll have more available credit which can boost your overall score and result in a better loan.
If your loan gets declined or you don’t get the loan terms you’re hoping for, ask the lender why. You may be able to get key insights into little changes you can make to increase your score and may even find errors in your report and work to fix them.
Be sure to look for loans that meet your credit needs. Greater Nevada is proud to offer a variety of options:
- Traditional Auto Loan
- Payment Saver Auto Loan
- Credit Rebuilder Auto Loan
- First-Time Car Buyer Auto Loan
Hot tip: Remember, if you don’t get the perfect auto loan now or your credit improves and you want to lower your payment, interest rate or loan length; you can always look at Auto Loan Refinancing. Studies have shown refinancing saves an average of $52 per month. Before you apply, be sure to check for prepayment penalties on your current loan.
| Traditional Auto Loan | Payment Saver Auto Loan | Credit Rebuilder Auto Loan | First-Time Car Buyer Auto Loan | Auto Loan Refinancing | |
|---|---|---|---|---|---|
| Flexible Terms | X | X | X | X | X |
| Up to 100% Financing | X | X | X | ||
| Lowest Payment | X | X | |||
| Lowest Rate | X | X | |||
| Protection Products Available | X | X | X | X | X |
| Tailored to Those with No Credit | X | ||||
| Less Than Perfect Credit | X |
3. Plan Your Down Payment & Trade-In
Just like a house, your down payment will help lower the overall cost of the vehicle and loan amount. While it may be hard to save up for a large down payment, it ends up saving you a lot of money in the long run. If possible, put 20 percent down to help lower your monthly payment and give you a little extra negotiating power.
Hot tip: If you can delay your car purchase, take the time and save up more money for your down payment to help lower your monthly payment and save you money down the road.
It’s also important to get an idea how much your vehicle trade in may be worth. By researching values from Kelley Blue Book and Consumer Reports and even calling the dealership ahead for an estimate, you’ll feel more confident that you’re getting the value you deserve.
4. Decide the Length of Your Loan
Another key piece to consider is the length of your loan. It’s best to get a loan for five years or less. Though it may be tempting to get a longer loan to reduce your monthly payment, it can be dangerous. Loans of six and seven years put you at greater risk to end up upside down in your auto loan (owing more than your car is worth) or even having the loan longer than you own the car.
5. Evaluate Your Monthly Payment and Additional Fees
Based on your down payment and the length of your loan, you’ll get an idea of your monthly payment. To keep your finances on track, try not to spend more than 15 percent of your take-home pay on your new car.
Hot tip: Calculate the additional costs and fees that come with a car purchase. Many of us forget to account for possible increases in insurance, registration and licensing fees; as well as average gas costs and any add-ons or maintenance that can come with a vehicle purchase.
6. Get Pre-approved
Now that you know what’s most important to you financially, use an auto loan calculator to find the right fit for you. Our online auto loan calculator lets you evaluate monthly payments, loan amounts, interest rates, and terms until you find the best one for you.
After finding the best fit, it’s important to shop around for a pre-approved loan. You can apply for pre-approvals with credit unions, banks, even the dealers themselves. On average, credit unions offer lower rates for both used and new car loans.
Having a pre-approved loan gives you negotiating power at the dealership and means you have a loan offer to fall back on if the dealership can’t offer you something better.
Hot tip: Get your pre-approval about a week before car shopping. Getting the pre-approval too early may mean rate and cost changes by the time you go shopping.
7. Go Shopping!
Okay, now the fun part. You did all your research and now it’s time to find your new car. So hit the car lot (or the internet lot) feeling confident in how much you can afford and making sure you don’t overextend your finances.
Start Loan – and Auto – Shopping with GNCU Today!
So many cars, so little time. Learn what’s available at dealerships near you and get the details on different makes and models, plus easily apply online after you’ve found the one you want, through AutoSMART.
Ready to take the step to get pre-approved? You can apply online now or give our expert loan consultants a call if you’d like to apply over the phone or ask any questions.
