smart spending

Getting the first car loan

Why credit score matters

Now that you know what you're looking for, it's time to review your credit score. If it's in the average or above-average range, congratulations; many grads come out of school up to their eyeballs in debt and with more than a few blemishes on their credit history. Even those who have been fiscally responsible may suffer from a lack of credit history. Don't worry, just because you have a low score doesn't mean you can't get a good loan -- you just might have to do a little more homework. (You can estimate your credit score using this FICO scoring model.)

Shop for the best deal

No matter what your credit score, the key to getting a good auto loan is shopping around. Many car buyers assume that the best place to get financing is at a dealership, but that's often not the case. Even if you are planning to finance at the dealership, get some other offers from banks and credit unions first.

"Shop around for the financing the same way you shopped around for the car," says Jack Gillis, Director of Public Affairs for the Consumer Federation of America and author of "The Car Book." "You need to find out what the typical rates are for someone with your financial history."

You can use Bankrate to research rates in your area. (Keep in mind that if you have below-average credit, you may not qualify for those rates.) Also, many lenders allow you to apply online and receive a reply within a few days or even a few hours.

Benefits of preapproval

There are a number of benefits to shopping around. First, when you go to the infamous F&I (finance and insurance) room at the dealership, where a large percentage of dealership profits are made, you have instant, valuable leverage. This is especially true for people with below-average credit, who can often get better rates from a credit union or a bank than they can at the dealership.

"Get preapproved elsewhere," says Edmunds senior features editor Joanne Helperin. "It gives you a bargaining chip and it helps keep things simple during negotiation. You can say, 'I've got this, try to beat it.'"

Shop prepared

Also, having financing arranged before stepping onto a lot helps ensure that you won't be "upsold" to a car you can't afford. No matter how dazzling the test-drive or how high-pressure the sales pitch, if you know you can only get a certain amount of financing, it will be easy to keep disciplined about not spending too much.

Finally, if the dealership is offering a choice between a low interest rate and a fat rebate, having a good offer from another lender will allow you to take home both the rebate check and a low-APR loan.

Claes Bell is a freelance writer based in Lake Worth, Fla.

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