Shopping for a new car can be exciting, but figuring out how to pay for it is often less invigorating. A car loan is the standard way to pay for your next vehicle, but all loans are not created equal. There are several ways to ensure that you get the best car loan you can.
Know Your Credit
Before you even start shopping for a car, know your credit rating. The higher your score, the less of a credit risk you are considered to be. While car loans do not usually require as high a credit score as other loans, such as a mortgage, a higher score can help you get a good interest rate. If your credit score is not what you would like it to be, consider taking some time to build it before you need a car loan.
Budget and Negotiation
Know how much you can afford to pay per month before you start negotiating the terms of the loan, but do not use your desired monthly payment as a negotiation tactic. Focus negotiation on the price of the car itself. This can help protect you from a longer loan term, which just pads the lender’s pockets with interest.
Check the Contract
Make sure that everything you and the dealer agree upon verbally is written into the loan terms before you sign it. If you have a variable interest rate, figure out what the highest monthly payment could be, and make sure it is within your budget. If you intend to pay your car loan off early, be sure that the contract does not include penalties for doing so.
Getting a car loan can be complicated, but planning ahead can help. Your car loan will be a part of your life and your budget for a few years, so it is in your best interest to make sure your dealer offers you a loan that works well for you.