The language of loans can sound a lot like foreign dialogue that can feel like it takes years to understand. How do you calculate the best interest rates or know if you can get a car on finance with insurance included? Most of us don’t really know where to start, but knowing the right tips and the right bank will have you riding off into the sunset in no time.
It would be ideal if we could just dig into our pockets and magically pull out the thousands needed to drive our new dream cars off the lot, but unfortunately, that’s only something either Jeff Bezos or the genie from Aladdin are able to do.
Lucky for us Average Joes, however, there are car loans that can make the dream of getting our ideal vehicle turn into an affordable reality. Here are a few tips that can help you fulfill that dream.
Improve Your Credit Score
Whenever taking on new financial obligations, the first thought for most people is how to get what they want while keeping their monthly bills as low as possible. In order to get the best rates possible from any bank, check your current credit score before applying for a loan. A basic rule of thumb when looking for any kind of loan is that the better your credit is the better your offers will be. So if you’re not in desperate need of a vehicle, it can pay off to build your credit first.
If this is your first car or first loan, and you either don’t have credit history or you have a poor one, taking a few months to build your credit can drastically save you time, money, and headaches when you go to look for a loan. With a better loan deal, you’ll have more options for when you then go searching for a vehicle.
There are multiple ways you can build your credit from opening credit cards to setting up payment plans for things you were already going to purchase. But it’s important that you pay them in consistent increments.
Set Your Budget
Although cycling relieves stress, you probably don’t want to have to bike everywhere you wish to go. Setting a realistic budget below your means is the best way to shop for a car. If you’re setting up monthly payments through leasing, a loan, or buying, there are multiple costs that go into being a driver.
The purchase price for driving off the lot isn’t your only concern. The next biggest cost in owning a car is insurance, and before picking out new wheels, it doesn’t hurt to ask your insurance company for rate ranges on types of cars you’re interested in.
If you know you can afford to spend around $700 a month in total for a car — gas, oil changes, car insurance, and car payments — you should try to find a loan agreement that is about a third to half of that budget.
Shop Around for a Deal
Don’t take your first offer. Shop around and take time to find the right deal. There’s nothing wrong with calling around for quotes before making a decision because every time you apply to prequalify your credit takes a hit.
Since you can’t avoid the car loan process, knowing what will be affected and planning for how to pay off your car loan before applying will set you up for success. You likely will not buy the first car you test drive, so treat your financial helpers the same way.
Lucky for you I called around to some of the nation’s most popular banks. Here is a small cheat sheet for what I gathered.
Bank of America
This is my personal top choice. Their customer service was wonderful, and the representative was not bothered to walk me through multiple options even after knowing I wasn’t ready to commit. They want your business and treat you as such.
The best parts of what they offer are:
- 30 days to find a car after getting approved
- Interest rates start between 2.69% for new vehicles and 2.99% for used
- Option for buying out a lease which is great if you can’t afford to buy right away
They only go through the dealer, which means you will not need to be the middleman, and once you drive off the lot, the bank is the only payment you will have to keep track of.
Citi Bank was pleasant to deal with. Though they no longer specify for auto loans, they do offer personal loans, which can be used to purchase or lease a vehicle. A personal loan can be a smart choice when seeking assistance. You can use a portion of the loan to begin payments on your vehicle whereas a direct auto loan will only cover what is needed to get you off the lot.
Here are a few things to know:
- Minimum to max they offer assistance with is $2,000-$30,000
- Interest rates start at 8.49%-16.99%
- Approval highly dependant on your credit report
The most unique part of dealing with Capital One Bank is that getting preapproved for an auto loan with them does not impact your credit. They want you to prequalify and know exactly what your specific deals and budget will look like.
You can search for vehicles based on your approved APR through their website, which is convenient and time saving.
I found BB&T difficult to get a hold of, but if you prefer the DIY approach or already have some basic knowledge on car loans, their online self service could be a great option for you. BB&T will only quote you once they run your credit.
So if you don’t already have an account with them, know that your credit will take a hit even if you decide to decline their offer.
Credit Union of GA
If you have poor credit, your local credit union may be a great choice. Interest rates will be slightly higher but can be easier to get approved. Like other banks, you can apply online and your credit will be affected, and the older the car the higher the interest rate will be.
- Interest rates begin at 2.19% for a new vehicle and 3.84% for a car 2015 or older
- Offers car finding service. They basically are like a valet that finds you a car based on what you can afford. All you need to do is pick it up
- You’ll need to provide your employment history. Depending on credit, they will look at your debt/income ratio in order to qualify you
- Co-signing is best if your personal credit score is under 700
Shop Smart and Drive Safe
Shopping for a vehicle will easily be one of the largest transactions you’ll ever make, so don’t rush your decision. Be smart and ask lots of questions. Don’t just go with who gets recommended.
Research your area and find out who’s willing to fight for your business. Weigh out your best options, and if a rate is overwhelming you now, that’s a sign it probably won’t be for you in the future either.
Danielle Beck-Hunter writes and researches for the auto insurance comparison site, AutoInsurance.org.