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What You're Missing in Your Search for the Best Car Loan Rates

Dec 30, 2022

Here's What Will Really Help You Find the Best Car Loan and Car Loan Rates

If you're shopping for a car, chances are you're also shopping for a car loan. The interest rate on your car loan has one of the biggest impacts on the overall cost of your car. While the dealership may advertise amazing rates that seem impossible to beat, the truth is you can get a far better rate if you know how to shop. Here are some surprising secrets that will help you get a great rate on your car loan.


Find the Car Loan Separate from the Car

In a typical car purchase, the buyer will head to the dealership to find a car. Once they find one they like, they will haggle with the dealer on the purchase price as well as the loan details so that they can drive away in their new car that day. This common process could actually be a costly mistake.

When you apply for a loan at a dealership, the dealership does not actually finance the loan. Instead, they send the application to a lender who approves or denies the buyer. If approved, the lender will present a loan term and interest rate to the dealership that they can offer the buyer. The dealer then may increase that interest rate before presenting the loan back to you, allowing them to pocket some of the income from the loan.

Instead of shopping for a car first, consider shopping for a car loan first (or at least separately). When you get your loan directly from a trusted lender, you skip the middleman. You won't pay extra to cover the dealer's commission or fee.

Finally, shopping for financing separately lets you walk into the dealership pre-approved. This helps you stick with your budget and negotiate more effectively on the price of the vehicle.



Enjoy our money and time-saving tips for your car-buying journey by downloading our free guide:

Car Loans 101: Car Buying Made Easy



Research Your Credit History (and Clean It Up)

If you want to get the best car loan rates, make sure you look like an appealing borrower. The most important factor a lender will look at is your credit rating. Before you start shopping for a car loan, pull your credit history. If you see any problems or errors, take measures to correct them. Some steps that can make a big difference include:

  • Lowering your debt-to-income ratio by paying down debt 

  • Creating a bigger gap between line balances and limits

  • Having any errors removed from your credit history

After taking these steps, wait 30 days or longer, and watch as your credit rating improves. A clean, solid credit history can help you obtain the most competitive loan rates.


Know the Loan Total – Your Car Loan Rate isn't the Only Key Factor

While car loan rates are the biggest cost of most car loans, they aren't the only cost. Make sure you consider all of the costs. Some of these include:

  • Tax, title, and tag fees: The local taxes, costs to transfer the title, and other county or state fees associated with vehicle purchases are often rolled into your loan amount.
  • Origination fees: These are the fees the lender charges upfront for making your loan. It's a commission the lender earns for processing your application. When interest rates are low, origination fees give the lender a bit more income from the sale.
  • Other lender fees: Lender fees can go by many different names, but they all add up to the same thing. These fees add to the total cost of your loan.

Remember, dealers often offer unbelievably low-interest rates (even zero-percent interest offers), but there are other ways they make their money. Low or zero-percent interest offers often have other fees, so always find out the total cost.

How can you see the total cost of the loan? Because of the Truth in Lending Act, your lender must disclose not only the interest information but also the fees on your loan. Take a close look at this document as you compare loans, and make sure you're not being swayed by low interest rates, only to be charged high fees.

A car loan is a long-term financial commitment. Before you sign on the dotted line for one, make sure you have the best possible rate. By doing your research ahead of time, you can find an affordable loan for the car you love.

For more details on how to find the best car loan rates and more tips to save you time and money on your car buying journey, review our "Car Loans 101: Car Buying Made Easy" complete guide!