Ready to secure a low rate on your next vehicle? Of course you are. Here are 5 tips that can help get you there.
Take Care Of Your Credit
It should come as no surprise to you that your credit rating is the biggest determining factor on the interest rate you pay. What you might not know is just how easy it is to get a good credit rating.
The biggest factor affecting your score will be your on time payments. Payment history represents a third of your credit score, so make those payments on time. If you are the forgetful type, lean on payment reminders and even automatic payments.
The next biggest factor is credit utilization, which makes up 30 percent of your credit score. Credit utilization is how much of your credit you are using. You want to be using less than 30 percent of your credit to be considered good here and less than 10 percent to be considered great. That means that if you have 2000 dollars in credit, you need 200 dollars or less to be your balance.
Making up the rest of the credit pie are things like age of credit, mix of credit and inquiries. Lenders want to see a lengthy credit history with many different types of accounts to prove that you can handle different forms of credit.
Get Approved Before You Shop
The last thing that you want to do is go shopping at a dealer before you have arranged credit. You are far too likely to fall in love with a vehicle and then you are left at the mercy of the dealer financing department.
What most people do not know is that the dealer makes money off of the financing. Their banks might offer you 5 percent interest and they charge you 6 or 7 percent. The difference goes into their pocket and many times a dealer will make more off of the back end of the loan than they do on the vehicle sales price.
Try to get financing from a local credit union before you visit the dealer. This will let you know what kind of rate you truly deserve. You can then allow them to try to beat the rate. If they can, great, you get an even lower rate.
Look For Low Interest Deals
If an automaker is trying to clear out inventory, they often advertise very low or even zero percent interest. These are rates than no bank can match but there are a few catches.
First, you will have to have excellent credit to qualify for these exceptional rates. If your score is not at least in the 700’s you are likely not going to be able to qualify.
Also, your choice of vehicles will obviously be limited. The manufacturer only offers these deals because they have to get rid of an overstock. That means the hottest new cars and trucks are likely not going to be offered with the special rate.
Stick To A Shorter Term
The longer your loan term, the higher your interest rate will be. This is because longer loans are riskier for a lender. With terms of 5, 6 or even 7 years, you are likely to owe more than the vehicle is worth for years. That means that if you defaulted, the lender would be unlikely to get their money back.
48 months would be an ideal loan term, but if you must go longer, try to go no longer than 60 months.
Choose The Right Vehicle
This might surprise you, but the actual vehicle that you buy can also affect your interest rate. Like everything else, it all comes down to risk for a lender and some vehicles are just riskier than others.
Ideally, you want a vehicle that will hold its value longer and that has a reputation for reliability. Lenders know that if your vehicle is holding its value and running well, you are far more likely to keep making the payments. So, if you want a better rate, choose a Honda over a Hyundai or a Toyota over a Kia.
Put More Money Down
Last but not least, if you want the best rate, put a little more money down. The magic number is 20 percent, but this can be a hard number for a lot of people to swallow. That is 6000 dollars on a 30,000 dollar vehicle after all.
Try to put as much as you can down, keeping in mind that the more you come up with, the lower your rate will be. This is because more money down means that you will get ahead on your loan much quicker. That makes the loan less risky for a lender.