- I recently bought a used car and saved over $ 500 in interest buying a loan.
- I started by checking my credit score to make sure I qualified for the best rates.
- Then I shopped for the lowest rate and asked the dealer if he could beat it.
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Buying a car is stressful enough, so adding financing to the mix can make the whole process overwhelming. It’s tempting to choose the first loan you’re approved for, but I knew I wanted to shop around and make sure I could get the best rate I could.
In the end, getting pre-approvals from various lenders and then using them as leverage when negotiating with a car dealership saved me $ 549 in interest.
I checked my credit score first
The first step I take before submitting a credit application, whether for a loan or a credit card, is to check my credit rating. This gives me an idea of what I can possibly claim before filling out dozens of applications. Checking your credit score won’t hurt your credit, but it can cost money.
Fortunately, I have access to my free credit rating through American Express and Chase. All cardholders get a free credit score from these two issuers. My VantageScore was listed as 738 in the American Express MyCredit guide and 710 in Chase Credit Journey.
However, it’s more common for lenders to pull your FICO score, so I wanted to check that out as well. I signed up for an Experian CreditWorks Basic subscription, which is free and includes your credit score and credit monitoring. My FICO score, pulled by Experian, was 736.
While I could see things like my credit usage and recent applications through Experian, I wanted to make sure my complete credit history was correct before applying for loans. If my credit report contained any errors that could lower my score, it would be important to dispute and have them removed before applying for credit.
I had recently pulled my credit report through AnnualCreditReport.com, which you can do once a year for free. Everything looked good, so I was ready to start applying for car loans.
I shopped for the pre-approval rates before approaching the dealers
I knew I wanted to shop around for pre-approvals before I spoke with car dealerships. This gave me an idea of what rates I’m eligible for, which I could then use as leverage when negotiating with a car dealership. I wasn’t determined to borrow from a particular lender, nor was I opposed to going through a dealer for financing – I just wanted to go for the option that gave me the most rate. low.
Knowing that multiple loan applications in a short period of time would be consolidated into one credit check, thereby minimizing damage to my credit rating, I requested pre-approvals from a wide variety of lenders. Some lenders made a strong draw on my credit report (which may affect your score), while others just made a soft draw (which does not impact your score).
I applied through my credit union, several others
in my area, a few traditional banks and an online lender. The only lender that turned me down was LightStream, an online lender. Credit unions have approved me rates ranging from 3.2% to 4.25% pending the model year of the vehicle. My own credit union, First Tech Federal Credit Union, had the lowest rate, so I printed my loan approval offer to take with me when shopping for cars.
I asked the dealer if he could beat my best rate
My plan was to find a car I wanted to buy first and then ask the dealership if they could beat the rate I was offered with their own financing. Most of the dealerships I have visited offer financing in conjunction with local credit unions, including the ones I applied to.
When I found the car I wanted, I first negotiated the price. After that I clarified that I wanted to buy the car and asked them if their finance department could beat the lowest rate that was offered to me, showing them a copy of the loan approval from my credit union. .
The dealership went through all the lenders they partner with to find the one who would be able to offer me the lowest rate. They ended up getting me a much better deal through the Oregon Community Credit Union, an institution I had not applied to. With dealer financing, I qualified for 2.48% APR as long as I signed up for automatic payments. I had to be a member of the credit union to get a loan, but all I had to do to become a member was to provide proof of address.
Shopping for the lowest rate saved me over $ 500
In the end, I put some of the price of the car in cash and took out a loan of $ 11,566 at 2.48% with a loan term of 60 months (or five years). If I don’t pay early, I’ll end up spending $ 744 on interest, which isn’t bad in my opinion.
If I had gone for the lowest rate my credit union offered (3.2%) instead of trying to negotiate with the dealership, I would end up paying $ 965 in interest. It’s not a huge difference, but it’s still over $ 200 that I saved by just asking the dealership if they could beat my best rate. If I had neglected to shop and opted for the very first pre-approval I got, which came with a 4.25% APR, I would have paid $ 1,293 in interest.
In the end, I saved $ 549 in interest by shopping and negotiating with the dealership.