Check out how to get the cheapest car loan

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Your credit rating, the type of car you buy, and your lender all affect the cost of your car loan. Finding the best places to rent means multiple applications and more research before shopping. But pre-approval gives you more bargaining power with the dealer — and it can save you thousands of dollars over the life of your loan.

4 steps to a cheap car loan

Prepare to shop by knowing your budget, credit history and ideal repayment period. These steps will help you find an affordable — and hopefully low-cost — lender.

1. Know your budget

Experts recommend that you pay no more than 10% of your income on a monthly car loan. Ideally, you walk down the hall with a clear idea of how much you can afford, including the extra cost of owning a car.

2. Check your credit report

Your creditworthiness is an important factor in how lenders assess your ability to repay your loan. The higher your credit rating, the lower your interest rate. This means that cheap car loans start with good credit. You can get your credit score and history from Equifax, Experian, and TransUnion, or for free at AnnualCreditReport.com.

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Before applying for a car loan, try to get your credit score as high as possible. Some ways to improve your credit score include paying off your outstanding debt, striving for a credit utilization rate of 30% or less, considering debt consolidation, and not missing future payments.

3. Prequalify with multiple lenders

Although most lenders use the same factors to determine your interest rate, they apply these factors in different ways.

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The best way to find the cheapest deal based on your credit is to apply for prequalification with multiple lenders. Check out some banks, credit unions or online lenders and compare the rates offered.

Looking around will give you an idea of what’s going on outside. Once you know your eligibility, you’ll have a better understanding of your monthly payments. Also, if you want to consider dealer financing, you can negotiate with an existing backup plan.

4. Do math

While the lower annual rate (APR) is attractive, it’s not the only number to worry about. The resale value, down payment and loan term of the used car all affect the total cost of the new car. Because the more you can pay up front – and the less interest you pay overall – the cheaper your car loan will be.

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Use the auto finance calculator to find out the total interest and monthly repayments you have to pay. This is a very useful tool, especially if you’ve prequalified with multiple lenders to get an idea of the rate you can expect to pay.

Most auto loans have terms ranging from 24 to 84 months. While the long-term results in lower monthly payments, the overall cost is higher. Choose a loan with the shortest term you can reasonably afford to keep your overall cost down.

Where can you get the cheapest car loan?

Merchants work with banks, credit unions, and online lenders to provide you with financing. To get the cheapest car loan, you should start your search with them to avoid paying extra interest on similar loans.

Bank: If you already have an account with a bank, look there for a car loan. In addition to competitive rates, you also get relationship discounts. And since most dealers use banks for financing, you can get the same service without paying a dealer markup.
Online lenders: Because online lenders have to compete with banks and credit unions, their rates tend to be similar. On top of that, many people work with borrowers who don’t have perfect credit, so if you don’t have an extensive credit history, they can be a great place to get cheap loans.
Credit Unions: Because credit unions are not-for-profit, they usually offer banks’ competitive interest rates and similar loan terms. This means they are one of the cheapest ways to get a car loan. However, since you have to be a member, it can take several months – and an active account – to apply.
Next step

Auto loans are one of the biggest expenses for most people, so make an effort to find the cheapest auto loan.

Before you decide to buy a new set of wheels, learn about current auto loan rates. This will be an important factor in the size of your repayments, but when it comes to monthly payments and the total cost of the loan, you should keep your budget in mind to ensure auto loans are cheap and affordable.

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