Best Auto Loan Rates: Essential Factors to Consider

How to Get the Best Auto Loan Rates
A new car coming out of a dealership

Car finance can be full of challenges if you are unaware of how auto loans work. If you pass by a dealership and stop to ask for details about a new car, the dealership may lure you into opting for in-house finance while keeping you in the dark about a few crucial facts. Many buyers need help with getting the best auto loan rates. Most Americans follow a common practice: going to a dealership, applying for a loan to buy a new car, and getting their vehicle out. While it seems like a smooth plan, it might be a bad idea.

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Let us guide you through some interesting factors you should consider to hunt for the best auto loan rates in the competitive market. Before we dive into it, let’s quickly conclude our discussion on why dealership loans may not fit you.

Dealership Auto Loans – The Hidden Truth

Most auto dealerships place attractive car finance offers to attract new buyers. First-timers quickly engage in the discussion to get their hands on a new car. Auto dealerships have in-house finance teams to pull credit checks and offer loans. These loans may have higher Annual Percentage Rates (APR), additional (hidden) costs, and a few upselling factors directly influencing monthly car payments.

Some dealerships have intermediaries that take a certain part of the interest percentage on each car finance. Most buyers are unaware of such tactics and succumb to attractive offers when opting for dealership-based car loans. Although not every other dealership may practice the same culture, you may keep your options open when signing a contract.

How to Get the Best Auto Loan Rates?

Keeping the above information in the picture, you may wonder how to get the best auto loan rates in the competitive market. We have covered a few important factors that can favor you when buying a new car.

Optimize Your Credit Score

Most car buyers rush to buy a car and settle a deal with the dealership. It can impact your financial status in the long run. Optimizing your credit score is the best way to get suitable loan rates. When you apply for an auto loan, loan officers thoroughly check and validate your documentation to determine your monthly expenses and income. They also verify your personal information, including employment status, ID proof, and physical address.

The most crucial of all factors is your credit history. If you have a good credit score, you may have more flexibility (in terms of monthly payments). Bad credit scorers have very limited options to decide. You may take a few steps to improve your loan chances if you have a moderate-to-low credit score. We have listed a few things you can try to boost your credit score.

Clear Your Revolving Debts

Regardless of your credit history, revolving debts can greatly impact your score. Credit score depends on your debt-to-credit ratio, which varies based on your debt amount and payback schedule. Your score will automatically decline if you have more debt than your annual income. Paying your revolving debts can boost your credit score.

Request an Increase in Credit Limit

In some cases, requesting a credit limit increase can favor you in terms of auto loan rates. A higher credit limit positively impacts your debt-to-credit ratio. Typically, a credit limit increase can lead to temporarily dropped credit scores. If you notice such an effect, you may wait a few weeks for improvement.

Your credit history is an important factor to remember before you request a credit limit increase. If you have a consistently good credit score, pay your debts on time, and maintain a good debt-to-credit ratio, you have a better chance of getting a higher credit limit. You may not want to request an increase with poor credit history.

Make Error Corrections

Car buyers often face problems due to errors in their credit reports. These errors may include falsely quoted data, inaccurate account history, and more factors (depending on your credit limit and income sources). Sometimes, buyers have accounts on their credit reports that belong to other entities. Such problems can lead to poor credit scores.

A good rule is to get a copy of your credit report and check it thoroughly to determine the accuracy of the information. If you notice problems, you may contact your bank and refine your report to enhance your credit score.

Maintain a Good Payment Schedule

When planning to apply for an auto loan, you may work on your payment schedule and make other payments within deadlines to create a good impression on loan officers. More often, those with delayed payment schedules create trust issues, leading to smaller loan approvals and higher interest rates.

Even if you had a poor payment history some years ago, recent improvements could help you gain an advantage when applying for an auto loan.

Save a Bigger Downpayment

Many Americans pay smaller downpayments due to a lack of saved funds. Smaller upfront payments can impact your vehicle cost. Auto loan officers slash some part of monthly payables when you pay a higher downpayment. You can save up for a few months to push your downpayment to 30% or more.

The higher your upfront payment, the less you pay for your car. Auto loans facilitate buyers who cannot afford cash buying. Since it is a favor, it costs more than cash purchases. However, the cost can vary depending on how much you initially pay.

Compare Your Loan Options

Once you go through the above steps, you can compare your loan options in the competitive market. Doing homework before this step allows you to take a little extra benefit (due to improved credit scores and higher upfront payments) when buying a new car. You can check with your local credit unions, trusted auto dealerships, or banks to weigh your car finance options.

Best Auto Loan Rates
A car owner holding the keys

You can also opt for pre-approved car loans to save time and hassle. Pre-approval allows you to have a fixed budget while deciding your vehicle options. Typically, loan officers require basic preliminary data to conduct a soft credit check. Once done, you may receive a budget for your car (you can also buy a used car).

Pre-approved car loans come in handy when you do not have specific car preferences. Some users opt for an on-the-spot approach to make purchase decisions. For instance, if you need a car in the next few weeks, you may apply for a pre-approved loan to determine your car options within the loan’s range.

After comparing your loan choices, you can decide on the best auto loan rates in your city for an informed choice. Talking to a finance expert can help you learn the ins and outs of auto financing.

The Takeaway

The above comprehensive guide can help you prepare for the best car loan options in the competitive market. With many dealerships across the city, you may find it challenging to pick one with flexible payment terms and a large car collection.

Philly Auto has established a firm footprint in Philadelphia, PA, for its flexible auto finance services. You can choose from a vast collection of new and used cars to fit your needs. Get in touch with the dealership today to determine your options.