When you’re applying for guaranteed auto loans, there’s a lot you need to know, but one thing stands out above the rest—rates can vary widely from lender to lender. To get the best car loan rates, you should have an understanding of your credit history, and the ways that lenders use that information. This guide will help you understand the role that credit plays in car loan approval, and with that knowledge you will be much more likely to get a good rate.
The first thing you need to do is to learn how your credit score can affect your chances of getting a loan, and then you should get a copy of your credit report. You can, by law, get one free copy of your report from each of the three credit reporting bureaus (Experian, TransUnion and Equifax) per year. If you’ve already gotten your free copies for this year, the reports can be obtained online for a nominal fee. When you’re looking for a low rate auto loan, there’s almost nothing more important than your credit score—and getting a copy of your reports before you begin the application process will allow you time to correct any errors.
When you are looking for the best car loan rates, you should consult with prime lenders first, because they can offer much lower rates than subprime lenders. Different lenders have different credit criteria, and you shouldn’t assume that you aren’t a good risk simply because you have some blemishes on your credit history. Credit unions are excellent sources of this type of loan, and their rates are often much lower than those offered by other lenders.
When you’ve chosen a lender (or two) to consult with, ask their loan officers about their credit tier system. Credit tiers are usually rated A, A-, B, etc., and the tier you land on has a direct influence on the interest rate you’ll get. Get a paper copy of the credit tiering information, and keep it on hand throughout the entire loan application process.
Even if you do get offers right away, don’t pounce on the first one you get—remember, there are other lenders out there, and another low rate auto loan could be just a mouse click away. Even if you get a loan and you have poorer credit, you can improve your standing with the lenders by paying attention to your credit reports and by paying your accounts on time. If you do all that, you will probably be eligible to refinance your auto loan at a much lower rate.
Once you’ve made the decision to finance through a certain lender, be sure to ask all the right questions, and perhaps most importantly, read the fine print on the loan agreement. Be on the lookout for hidden fees and prepayment penalties which can make it harder for you to pay the loan. Although it can be hard to talk to car loan lenders, doing it correctly can allow you to walk away from the negotiations without feeling like you’ve been “taken for a ride.”