How to get the best auto loan quotes

Shopping around is the key to getting a good deal on an auto loan. In the current high-interest rate environment, it’s a good idea 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 determining what you qualify for.

So don’t rush into a loan. Careful preparation could help you save thousands in interest and fees.

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 4.75 percent and 5.99 percent, respectively. These figures increase to 13.42 percent and 20.62 percent for borrowers with scores between 300 and 500.

2. Take steps to improve your credit score 

If you have 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. Payment history counts 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 (with the exception of 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.

Many types of lenders that offer auto loans. You can apply with traditional banks, credit unions and online lenders to see which will offer you the best terms.

6. Review fees thoroughly 

No matter which lender you decide to do business with, compare APRs, loan amounts, loan terms, credit requirements and all other fees associated with the loan to ensure you choose the best fit.

Fees lenders charge include origination and 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.
• Time your visit to the dealership to take advantage of usual sale times, like midweek or over a holiday weekend.
• 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 and special rate deals, if you’re buying a new car.

Pay attention to the differences between trims. Safety features, fuel economy and tech impact total cost. Some features may not be available on less expensive trims.

The bottom line

It’s hard to overstate the importance of shopping around for quotes when buying a car. You’ll likely spend around $48,000 for a new car or $27,000 for a used car — 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 your loan’s life.