The key to getting a good deal on an auto loan is shopping around. You’ll want to compare rates from multiple lenders — as well as fees and other costs — to ensure you select the best quote. Your income, current debts and credit score will all play a role in what you qualify for.
So don’t rush into a loan. Careful preparation could help you save thousands over the life of your loan.
7 steps to get the best auto loan quotes
Auto loans are a big financial commitment. To keep things under budget — and still snag your dream car — follow these steps when searching for quotes.
1. Review your credit report and score ahead of time
This first step is crucial. If you don’t already know, check your credit score before you start applying. It will guide you toward lenders you qualify for — and reduce rejections.
It will also help you understand the potential auto loan rates you may receive. If your credit score is on the higher end, you’re more likely to get lower rates. Likewise, a lower credit score, or a history of missed payments, may result in higher rates.
To illustrate, the average interest rate for new and used car loans for borrowers with credit scores between 781 and 850 is 2.96 percent and 3.68 percent, respectively. These figures increase to 12.84 percent and 20.43 percent for borrowers with scores between 300 and 500.
Consider signing up for a free Experian account to view your free credit report and score or use the FICO Open Access Program to get free access to your scores. You can also check out Capital One’s CreditWise, Discover’s Credit Scorecard or Chase’s Credit Journey to view your credit profile.
2. Take steps to improve your credit score
If you have some time to spare before getting a new ride, consider taking steps to improve your credit score before applying for a loan. Start by reviewing your credit report, highlighting any errors that could be dragging your score down and filing disputes promptly.
Also, take these actions to help boost your credit health:
- Make timely payments. Paying your bills on time is vital, as payment history accounts for 35 percent of your credit score. Bring past-due accounts current to avoid continued negative credit reporting.
- Pay down your revolving balances. Credit utilization, or the percent of your credit limit in use, makes up 30 percent of your credit score. Your credit utilization rate shouldn’t exceed 30 percent for the best credit score.
- Don’t apply for new credit. Each credit application results in a hard inquiry that could ding your credit score by a few points. Several inquiries in a short period (excepting loan rate-shopping) could do even more damage to your credit score.
3. Get quotes from lenders you already work with
Already have a mortgage or personal loan? A long-term established relationship with a bank or credit union? Use these to your advantage.
Lenders may consider your positive history together when you apply for an auto loan. This could mean an easy application process or result in lower rates. It’s not guaranteed, of course, but borrowing from a lender you already use may mean you pay a little less in the long run.
4. Shop locally before going to a big bank
Local banks and credit unions are a good starting place if you don’t already have a regular lender. Big banks advertise lower rates, but they’re harder to qualify for. Local lenders often have less strict criteria, like income levels and credit scores, than their national counterparts.
The downside is that it may mean a waiting period. Some credit unions and small banks require you to open an account. Then you may need to wait a few weeks to a few months before you can apply for an auto loan.
This isn’t always the case, but review the fine print to check. If you’re not in desperate need, it’s likely worth the wait to make a more budget-friendly decision.
5. Apply with multiple lenders
Start locally but don’t limit your options. An auto loan will only count as one inquiry on your credit report — even if you send out applications to dozens of lenders. But this is only true if you apply within a 14-day period.
The more lenders you submit applications to, the more flexibility you’ll have. This is the best way to ensure you get a solid quote on an auto loan. If you’re vying for a certain loan amount or a competitive interest rate, applying with multiple lenders is the surest way to get there.
You can apply with traditional banks, credit unions and online lenders. Regardless of which you decide to do business with, compare APRs, loan amounts, loan terms, credit requirements and fees to ensure you choose the best fit.
Many lenders also offer 30 days of preapproval to shop around with. Once you apply, you’ll have time to pick the best option for your finances and scope out dealerships for the right car.
6. Review fees thoroughly
It’s not all about interest rates or monthly payments. Lenders may charge additional fees — like origination or prepayment fees. This can mean less money to spend on a vehicle or a penalty if you decide to make extra payments toward the principal.
Other fees, like late payment fees, are also important. Consider what other expenses might contribute to the cost of your loan when you receive a quote from a lender.
7. Negotiate with the dealership
Once you’ve received quotes from lenders, see what the dealership has to offer. Be prepared to reject add-ons like gap insurance or extended warranties. Try to get to the meat of the loan: Interest rate, fees and total cost should be at the forefront of your discussion.
Dealerships tend to upcharge on interest to make money. But sometimes, dealerships can score you a more competitive rate — if you already have financing lined up. If you’re offered a better quote, there’s no reason you shouldn’t take it. And if the dealer can’t match it, you won’t be pressed to accept a bad loan.
Don’t ignore other parts of the car-shopping process
Of course, a good quote isn’t the be-all, end-all of buying a car. There are a few other ways you can cut costs and still drive away with a deal.
- Research local dealerships to find the ones with good reviews and extensive inventory.
- Inquire about tax credits you may qualify for if you’re considering a hybrid or electric vehicle.
- Compare prices on sites like Edmunds or Kelley Blue Book (KBB) if you’re buying a used car.
- Look into the manufacturer’s current deals and offers, including rebates, if you’re buying a new car.
- Pay attention to differences between trims, like safety features, fuel economy and tech.
The bottom line
It’s hard to overstate the importance of shopping around for quotes when buying a car. You’ll likely spend upwards of $48,000 (or $33,000 or more if buying used)— so getting the lowest interest rate possible is worth the effort.
Most importantly, remember that even a slightly higher interest rate could cost you several hundred or thousand dollars more in interest over the life of the loan.