Negotiating a good price on a vehicle is only half the battle. You need to find a good loan that turns it into a great deal. Here are some tips for finding the best loan:
Shop for the loan and car separately
Before you begin to negotiate the exact vehicle and price, you need to apply for loans from respected banks, credit unions, and online lenders. If you can get a loan prequalification, it will be like going to the dealer with a blank check, which is good up to a specific amount.
Once you get a written contract from the dealer, you can start asking if they can be able to beat the deal that you already have.
Limit your loan shopping to 2 weeks
Every time you apply for any loan, your credit score will decrease, making it harder to get a loan with the best rate. However, if you make all your applications within a 2-week period, they will count as a single inquiry.
Know your credit history
To know your credit history, you need to request for a free copy of your credit report from Experian, Equifax, or TransUnion. Do you want to know your specific score from all these agencies? You should order them from the individual websites of all three agencies. The FICO or credit score that you pay for will probably not be the same one that your lender uses, but the figure will be close.
With a car loan, you will have more than a little wiggle room in your credit score. Moreover, car loans do not require a high credit score like mortgages do.
Shop for the total loan amount
Most people usually shop for monthly payments instead of the total loan amount. The only time that you should think about your monthly payments is when calculating how much to spend on the car. Once you do this, you do not need to discuss monthly payments any more. Some lenders usually focus on these payments to entice you to borrow more money.
That way, the lender will be able to make more in terms of interest and you will keep driving your depreciating car for a longer period.
Do not assume the best
Lenders are not under any obligation to give you the best rate. You need to let the lender know that you already have another offer or are shopping around for others. You will most likely see the best rates if you show the lender that you are not willing to settle for bad rates.
Read the fine print
You need to take the paperwork home with you and read it through before agreeing to put your signature on anything. If the lender refuses to give it to you, just walk away. A contract is a binding agreement that will last for several years, so having more info about it is vital.
Here are some points that deserve special attention:
Are the promises real? – is everything that the lender promised in the contract? An oral promise is hard to fulfill, so you need to make sure everything that was promised is in the contract before you sign on the dotted line.
Mandatory binding arbitration – this takes away your right to go to court.
Variable interest rate – what is the highest possible payment? If you cannot afford it, look elsewhere.
Prepayment penalties – how much does it cost to pay off the loan early if you want to refinance or sell the car?
If the monthly payments vary even a little from your calculations, the loan might have different terms than you negotiated.