There’s a crucial mistake people make when they apply for a car loan. They look at the monthly payment alone and ignore the total cost of financing. But if you take the right steps when you apply for an auto loan, you could end up saving hundreds or thousands of dollars by the time you pay off the loan. It’s not fun when you do it, but it pays off in the long run. Here are the things you need to do.
Set Your Budget
If you only focus on the monthly payment, the seller is going to use that to get you to pay more for your car. You’ll get a longer term, which means higher interest, which means you’re paying more money for your car. Focus on the vehicle’s overall price, including the total number of payments and the interest you will pay. The dealer won’t get to hide unnecessary features in your monthly budget and have you pay more.
Check Your Credit
Check your credit score and credit report. If your credit is poor, then you may have to prepare for high interest rates. Work out whether it makes sense to go in for a loan now or work on your credit till it reaches a point where you can qualify for low interest rates. If you have excellent credit, then you can use that to negotiate better terms on your car loan with any potential lenders.
Shop for Loans
Once you know where your credit stands, you can start collecting quotes from lenders. The main places to check for quotes are banks, credit unions, and online lenders. Visit them, call them, or check their websites and ask for a quote. Credit unions tend to offer the best terms. Getting a loan from the dealership itself will likely be the most expensive and should be your last resort.
A smart step would be to get preapproved for a car loan. Apply for all pre-approvals in the same two weeks so that they don’t affect your credit score too much. Then you can use that offer to get a better loan from the dealer or another lender and negotiate a fair price for the car.