Getting your first car is an exciting experience. It gives you a great sense of independence, maturity, and self sufficiency.
What’s not so great, however, is the inevitable auto loan that comes with that experience. It can often seem that understanding and comparing car loans is nearly impossible.
Here are three great tips you can put into use to help you get the best terms on your automotive loan.
Get a Newer Car
When banks and credit agencies consider your application for a loan, they are considering not just you and your credit history, but the vehicle you are purchasing as well.
As a general rule, banks will be much more willing to make a loan on a newer car than on an older one. This is largely because, in the event of repossession, a newer car will be much easier for that bank to get its money back out of.
To make borrowers more likely to consider this, it is common practice for financial institutions to offer high incentives for loans taken out toward the purchase of a car made within the last few model years.
One of the most common incentives is a longer term loan offered for newer cars. Newer cars are often given four, five, or even six year loan terms, whereas older cars are usually restricted at two or three.
These policies vary by institution, but a general rule of thumb is that the longer term loans will be offered on vehicles five years old or newer.
Compare Many Different Lending Agencies
Not all lending agencies will offer you the same terms and interest rates.
As such, it is often beneficial to apply for loans from several different institutions, and then compare the offer each one makes to you. You may very well find that one particular bank is willing to offer you an interest rate that is significantly lower that their competitors.
On a car loan that is likely to range well into the thousands of dollars, even the slightest break on interest rates can represent a substantial savings.
If you have a local credit union, you will want to pay especially close attention to the loan offer you receive from it, as credit unions often have slightly lower rates than traditional banks.
Get a Cosigner, Even if You Don’t Need One
If you have limited credit history, getting a cosigner is one of the best ways to lower your interest rate on your first auto loan.
Even if you have the ability to take the loan out yourself, it very likely that your interest rates will be higher on your own than they would be with a cosigner who has a well established credit history. Finding a friend or family member willing to cosign your loan will help you save a great deal of money on interest payments down the road.
Keep in mind, this is not a one sided proposition. If you do opt to get a cosigner, you are all the more responsible for ensuring that your payments are timely and complete, as another person’s credit is now on the line with yours.
Following these three tips will help you to secure the best possible terms on your first auto loan. To get more information on the exact details of a possible loan, you can contact the credit manager at the financial institution you intend to take your loan out from.
You can also try online peer to peer lending platforms as an alternative to traditional banks and credit unions, as these platforms often offer lower rates.
I didn’t know that the bank is considering what kind of car you will buy. I always thought it was just the loan the bank worried about. I thought it was a good piece of advice to apply at several different places, because it’s always good to have multiple options.