Topic: AUTO FINANCE
Who is affected: STARTING OUT, PARENTHOOD, BABY BOOMERS, RETIRED
DEGREE OF DIFFICULTY: MODERATE
What you’ll need: CREDIT SCORE; AMOUNT OF DOWN PAYMENT

What you need to know

The rate you get on a car loan can dramatically affect a car’s ultimate cost.

Ensure the best rate possible by following these steps:

  1. Figure out a budget. Creditors rarely extend a good deal on a loan you can’t afford to pay off. Figure out how much you can comfortably pay per month, the length of the loan you want and how much you can afford to put down.
  2. Check your credit. Your credit history has a lot to do with the quality of loan you’ll obtain. Get copies of your credit report for free at AnnualCreditReport.com. Your FICO score is available for a small fee at myFICO.com. Or, use the FICO Score Estimator to get a quick score estimate. Do this early to allow time to fix any mistakes or take action to improve your score.
  3. Shop for loans. Apply for loans at several different institutions, including your bank, a credit union (if you’re eligible) and one other bank. Use Bankrate’s rate search to find lenders.
  4. Negotiate. With loan offers in hand, go to the dealer and challenge them to get you a better rate. If they can’t beat it, use your prearranged financing.
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The length of a car loan can make a big difference in the loan’s interest rate and how much you’ll pay in interest over the life of your loan. To minimize both, get the shortest term you can fit into your overall budget. Your monthly payments will be higher, but you’ll pay the vehicle off more quickly, lowering your overall cost.
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