Compare Car Loan Rates

Getting the lowest interest rate for an auto loan is an important part of saving money on a vehicle. Evaluating cost of the car and the financing of the vehicle should be two separate discussions. To compare loans, you’ll need to gather interest rates, terms, and fees offered by various institutions and evaluate your own financial situation. Auto loans typically depend on several factors, but every person — even those with poor credit ratings — can find ways to compare rates and cut the long term costs of the loan.

Steps

Finding the Best Loans

  1. Know what to look for. A good car loan rate is based on several factors. The loan amount, the APR (Annual Percentage Rate), and the term of the loan all affect the amount of money you will end up spending or saving after your car has been paid off.[1]
    • The loan amount is the initial total cost of the loan; however, you will end up paying more than the total cost because an interest rate is added to each payment. In addition, there may be additional taxes and fees included in the loan amount.
    • The APR is a key number to pay attention to when evaluating a loan. It is the yearly interest rate that is added to the total cost of the loan. The higher the APR, the more money you will owe on the loan. For example, a $15,000 loan with an APR of 7% will cost you $500 more than a $15,000 loan with an APR of 5%.
    • The term of the loan is also a key component. This is the amount of time you are given to pay off the loan. Terms can range from 36 to 82 months. Taking the interest rate into account, the shorter the term, the more money you ultimately save. A $15,000 loan at 6.5% APR paid over the course of 36 months will have a higher monthly payment $460 per month, and a total interest of $1,500. The same loan with the same APR paid over the course of 60 months will have a lower monthly payment ($293), but you will ultimately pay $2,610 in interest — $1,110 more. Longer term loans often have higher interest rates, which means you would end up paying even more interest in the long-term.
    • Look out for extra fees. Read the fine print. Some loans have extra charges apart from the loan and APR. Ask about such charges over the phone or in-person.
    • Additional charges vary. Sometimes there is opening cost for the loan. Other loans charge penalties for paying the loan off early.
  2. Check with your bank.[2] Banks often have competitive loan rates; however, they usually only offer these rates to people with excellent credit. Set up a meeting with your bank if you have a good relationship.[3]
  3. Consider joining a credit union.[4] With low operating costs, credit unions have competitive rates, but usually only lend to their members. Join a credit union to capitalize on their low rates.[5]
  4. Talk to your car dealership. Car dealerships usually do not have the best loan rates; however, it is worth it to see what they have to offer. They are often willing to work with people with low credit scores, although the rates may be higher.[6] Once you have checked the APRs and terms offered by banks and credit unions, you will have a better sense of what is available on the market.[7]
    • Do your research before entering the dealership. The dealer sets the price of the car, but you also need to discuss how the car will be payed for. You will have some negotiating power if you know what is offered at other institutions.
    • Read the fine print. Some dealerships offer good loan rates but will not offer a rebate if you take the loan. If you were looking to get a rebate, consider searching for a loan elsewhere.[8]

Applying for Loans

  1. Determine the amount of money that you will be using as a down payment on the vehicle. The size of the down payment affects the amount of interest that you will have to pay. A larger down payment may qualify you for lower interest rates, so it is in your best interest to pay as much as you can upfront.[9]
  2. Examine the company history of each car loan lender that you are considering borrowing money from. If you are considering loans only from banks or credit unions that you are already familiar with and have had dealings with in the past, this may not be necessary.
    • However, if you are considering using a smaller lender or online lender with whom you are unfamiliar, you should learn about the company history with auto loans. Contact the Better Business Bureau (BBB) to learn about any complaints that have been lodged against your potential lenders and to insure that the company is in good standing with the BBB.[10]
  3. Apply for loans at several different financial institutions. Loan applications can be made either on the Internet or in person at financial institutions in your area. When you get loan offers from more than one place, you will have a basis for comparison.
    • Loan offers may be similar. Still, there are times that a one percent difference can save you hundreds or even thousands of dollars in the long term.
    • Keep in mind that making loan applications beyond a 30 day period from first to last may adversely affect your credit score.

Comparing Your Options

  1. Use a car loan calculator to calculate monthly payments. Find a loan calculator that allows you to enter key information including the price of the car, the down payment, the interest rates and the loan term. Websites like allsate.com and bankrate.com have useful calculation tools. These tools can help you see which loans will save you the most money in the long run. [11]
  2. Calculate rates on your own. If you are not able to access an online calculator, you can use your own calculations to get a sense of which loan will save you the most money. Prepare to use the total cost of the loan, the APR (interest rate), the term (the time you have to pay the loan) and the any other fees that apply.
    • Determine how many years you have to pay the loan. For example, a 36 month term gives you three years to pay off the loan.
    • Divide the total cost of the loan by the number of years you have to pay the loan. For example, if you take out a $15,000 loan with a three year term, the yearly cost would be $5,000.
    • Multiply the the yearly cost of the loan by the interest rate to see how much money you would pay in yearly interest. For example, if your APR is 5%, multiply the .05 by 5,000 (.05 X 5,000 = 250). Your yearly interest rate would be $250. Instead of paying, $5,000 per year, you would pay $5,250 per year or $437.50 per month.
  3. Compare the total interest cost of each loan. The dollar amounts of total interest paid may vary widely, so be sure to do all the necessary calculations.[12]
    • To determine the total interest costs of each lender, multiply the total monthly payment times the number of monthly payments, then subtract original loan amount from total to isolate interest cost.
    • Look carefully at the monthly payment for each loan and choose one that you can afford.[13]
  4. Consider perks or inconveniences. Think about how and when you will make your loan payments. It may be more convenient to take out a loan with your dealership and avoid dealing with another financial institution. On the other hand, your bank may make paying your loan easier for you.

Tips

  • Do not depend on a car dealership to give you the best offers, or even to give you a range of offers. Car dealerships will often give you only one percentage rate offer, but you can find multiple offers by applying to banks, credit unions, and other financial institutions on your own.
  • You can typically negotiate loans just like the price of the car, but you need to be sure that lowering the interest rate doesn't increase additional fees, the price of the car, or the number of payments.
  • Understand the role of your credit score. Your credit score affects the type of loan and APR you are offered.

Related Articles

References

  1. ↑ http://www.consumerreports.org/cro/2012/12/how-to-get-the-best-car-loan/index.htm
  2. ↑ [v161558_b01]. 15 September 2020.
  3. ↑ http://www.consumerreports.org/cro/2012/12/how-to-get-the-best-car-loan/index.htm
  4. ↑ [v161558_b01]. 15 September 2020.
  5. ↑ http://www.consumerreports.org/cro/2012/12/how-to-get-the-best-car-loan/index.htm
  6. ↑ http://www.consumerreports.org/cro/2012/12/how-to-get-the-best-car-loan/index.htm
  7. ↑ http://www.consumerreports.org/cro/2012/12/how-to-get-the-best-car-loan/index.htm
  8. ↑ http://www.consumerreports.org/cro/2012/12/how-to-get-the-best-car-loan/index.htm
  9. ↑ http://personalfinance.duke.edu/make-todays-decisions/transportation/what-are-ins-and-outs-car-loans
  10. ↑ http://www.consumerreports.org/cro/2012/12/how-to-get-the-best-car-loan/index.htm
  11. ↑ https://www.allstate.com/tools-and-resources/car-insurance/compare-auto-loans-calculator.aspx
  12. ↑ [v161558_b01]. 15 September 2020.
  13. ↑ http://personalfinance.duke.edu/make-todays-decisions/transportation/what-are-ins-and-outs-car-loans
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