Getting the Lowest Car Loan Rates is crucial to saving money over the life of your loan. Your rate depends on several factors, including your credit score, the type of car you buy (new or used), the loan term, and the size of your down payment. For context, the average new car loan rate in Q3 2024 was 6.61%, while used car loans averaged 11.74%. Let’s explore proven strategies to secure the best possible rate.
Power Moves for Securing the Lowest Car Loan Rates
Leverage Pre-Approval
Getting pre-approved for a car loan before visiting a dealership puts you in the driver’s seat. Pre-approval involves a hard credit check but provides a clear picture of your approved loan amount and interest rate. This knowledge empowers you to negotiate effectively with dealers, potentially securing a lower rate or better out-the-door price.
Master the Art of Negotiation (or Bring a Friend)
Negotiating the purchase price is key to minimizing your loan amount and, consequently, your interest payments. If negotiating isn’t your forte, enlist a skilled friend or family member to assist. Their confidence can also help you resist unnecessary add-ons like cosmetic packages and extended warranties.
Compare Rates with a Comparison Service
Shopping for car loans can be tedious and overwhelming. A comparison service like LendingTree simplifies the process by allowing you to compare offers from multiple lenders with a single application. This broadens your options beyond well-known banks, potentially uncovering hidden gems with highly competitive rates.
Explore Credit Unions
Credit unions often offer some of the lowest auto loan rates available. While membership is required, the potential savings can outweigh the joining requirements. Research local and online credit unions to find one that fits your needs and offers competitive rates.
Plan Ahead and Avoid Desperation
Don’t wait until your current car breaks down to start shopping for a new one. Desperation can lead to hasty decisions and accepting unfavorable loan terms. Planning ahead allows for thorough research and negotiation, increasing your chances of securing the lowest rates.
Utilize Car-Buying Services
Many banks and credit unions offer car-buying services, often in partnership with platforms like TrueCar. These services can streamline the car-buying process, provide access to pre-negotiated prices, and potentially offer rate discounts.
Unearth Hidden Promotions and Rebates
Car manufacturers frequently offer special financing deals through their captive finance companies (e.g., Ford Motor Credit). These promotions may target specific groups like military personnel, college students, or recent graduates. Leveraging these offers can significantly reduce your interest rate.
Make a Strategic Down Payment
While not always mandatory, a down payment demonstrates financial commitment and reduces the lender’s risk. This can result in a lower interest rate and potentially eliminate the need for private mortgage insurance (PMI).
Opt for a Shorter Loan Term
Longer loan terms (e.g., 84 months) may seem appealing due to lower monthly payments. However, they often come with higher interest rates. Choosing a shorter loan term can save you money on interest over the life of the loan, even if your monthly payments are slightly higher.
Capitalize on Holiday Deals
Car manufacturers sometimes offer promotional 0% APR financing deals around holidays and the end of the year. While less common during periods of high inflation, these deals can provide significant savings if you time your purchase strategically.
Don’t Forget Car Insurance!
Factor car insurance costs into your budget before finalizing your car purchase. Getting insurance quotes beforehand allows you to compare prices and avoid surprises at the dealership.
By implementing these strategies, you’ll be well-equipped to navigate the car loan landscape and secure the lowest possible interest rate, saving you money in the long run.
