When you need a pair of shoes, you normally jump in the car and head to the shoe store. You don't call up all of the stores ahead of time to see which ones have the best deal. It would take too much time. And not surprisingly, that's how we do most of our shopping. We rarely check to see if other stores have better prices.
But when it comes to finding car loans, it pays to spend the time it takes to compare the different deals lenders offer. Now I know it can be tempting to go straight to the dealer first and get your car and car loan all in one trip, but trust me that convenient one-stop shopping will cost you money you could have saved. Car dealers are known to add hidden fees onto car loans and charge higher rates (Whitaker 102). In fact, many financial experts advise against even looking into dealership financing, but don't write off dealerships right away. Instead, you should shop around.
To find the best car loan, you need to start looking for car loans before you even set foot on a car lot. If you're not convinced that shopping around for car loans is worth it, just consider this: according to Jerry Edgerton, interest rates on car loans will often vary three percentage points in a given area (82). If you can find the lowest interest rate in your area, you will save tons of money. So start comparison shopping.
There are four places you should look for car loans: banks, credit unions, online lenders and car dealerships.
Credit Unions should be the first place you look. Typically credit unions offer interest rates on car loans that are 1 1/2 percentage points below the interest rates banks offer on car loans (Fisher 74). If you don't belong to a credit union, you may want to see if it is possible to join.
Online Lenders have almost as low of interest rates on car loans as credit unions. Some online lenders offer car loan interest rates that are about a percentage point lower than traditional banks (Howard 2).
Banks normally have interest rates that are lower than car dealerships, but higher than credit unions and online lenders.
Car Dealerships are normally the most expensive place to get car loans. Their interest rates on car loans are typically one to two percent higher that the interest rates offered by banks (Fisher 73). But sometimes car dealerships do offer special deals and incentives. While those deals seem like they should save you money, they don't always. So before agreeing to a zero-percent financing deal or any other promotional offer, check to make sure you will actually save money. Compare how much the car would cost with the dealers loan and with other car loans. If you think the dealership has the best deal, ask to take the contract home with you so you can make sure there aren't any hidden fees (Whitaker 102). Read through it carefully before signing.
When comparing different car loans, don't make the mistake of going to the car lot to find out about the dealership's offers. Instead call on the phone. That way the dealer doesn't have the chance to talk you into signing on a bad deal. Instead, by gathering information about different car loans over the phone, you will be able to objectively compare your offers without being influenced by a salesman or saleswoman.
Once you have found which car loan is cheapest, it is time to become preapproved - that is, only if you aren't getting dealership financing. Being preapproved for a car loan will enable you to negotiate better with the car dealer because the dealer knows you are serious about buying a car and doesn't have the option of trying to talk you into dealership financing (Fisher 74). An added perk of being preappoved is that you won't have to worry about the dealer talking you into buying a more expensive car, because you already have a set limit of what you can afford.
But don't be fooled into thinking being preapproved is all you need to have in order to get a good deal when buying a car. You must also know how to negotiate. To learn how to negotiate on the lot read Step 7: Negotiate on the Lot to Lower Your Auto Loan Costs
. The Rest of Our Auto Loan Guide: