Last week we talked about choosing a good used car to buy when you’re ready. The next step is paying for it, especially if you’d like to get a car that’s beyond your current cash on hand. That brings us to finding a good deal on a car loan to finance that good used car you located. If you’re shopping for a car and need to finance some of the costs there are five good ways you can obtain a car loan at the lowest possible interest rate and the best loan terms.
1. They Say Timing Is Everything! Interest rates on car loans float up and down with prevailing economic conditions. Do some research on current rates and key indicators that can tell you if rates are going to be steady, rising or falling in the near term. So, if you’re not in a super hurry to buy your car you might get a lower rate simply by waiting for the right time to take out a loan. 2. Know Your Credit Score Banks lend money at interest rates that match their level of risk – they use credit scores to determine that risk. If you have a history of meeting all your financial obligations on time and you don’t carry too much debt in relation to your income you probably already have a high credit score. Keeping that credit score high will keep your interest rates low. Find out your score before you decide to borrow money for your next car. 3. The Higher The Down Payment The Lower The Interest Rate This is called “Loan to Value” ratio. That’s a fancy way of saying the more money you put down the more secure a bank feels when lending you money. Typically, the more you put down, the lower your interest rate and your monthly payments. 4. Get A Co-Signer When you’re a young person just starting out and haven’t established a positive credit record sometimes you have to help banks know you’re not a high-risk borrower. That’s where a co-signer becomes necessary. Think of a co-signer as a referral from a friend or family member who’s also willing to guarantee the bank you’re a worthy borrower. Without a co-signer you may not get the loan at all or if you do the interest rate will be off the charts high making monthly payments that much tougher to maintain. 5. Shop ‘Til You Drop Banks are competitive and they make money by lending money. They really like auto loans because the car itself is collateral for the loan. So shop around – make sure each banker you speak with knows you’re comparing rates and terms at other banks. You’ll be delighted to find how much they want a customer like you and how willing they’ll be to offer you a great car loan.