What should I know about auto loans before I shop?

What’s my affordability?

When shopping for a car, it’s tempting to focus solely on the monthly payment based on the vehicle’s price. However, this overlooks crucial factors influencing your overall loan costs:

• Interest rate and APR
• Taxes and fees
• Optional add-ons and features
• Auto insurance and ongoing maintenance

While negotiation with your lender or dealer can impact these costs, they significantly shape your loan terms and overall borrowing expenses.

To potentially lower your monthly and overall loan costs:

• Save for a larger down payment
• Consider a less expensive vehicle
• Opt for fewer add-ons or features

Utilize our auto loan calculator to compare expenses and craft a budget tailored to your needs.

How does my credit affect my interest rate?

Your credit report and scores significantly influence the interest rates offered by lenders for auto loans. Typically, lower credit scores correlate with higher interest rates, resulting in increased expenses over the loan’s duration.

Remember, you’re entitled to a free credit report from Equifax, Experian, and TransUnion annually, with additional reports available until 2026. Prior to car shopping, scrutinize your credit reports to rectify any errors affecting your score and potentially hindering your ability to secure favorable rates.

Additionally, be mindful of the impact of multiple credit checks on your score. Limit these inquiries to a 14 to 45-day window to minimize their effect. If working with a dealer, note that they may submit your credit information to approximately five lenders, necessitating a concise car-buying timeline.

Should I Consider a Co-Signer?

A co-signer is someone who agrees to jointly sign your loan, assuming responsibility for repayment if you’re unable to meet the obligations. For individuals with limited or poor credit history, having a co-signer with good or excellent credit can potentially secure a lower interest rate, as lenders consider their credit history and score.

It’s essential to recognize that co-signing entails significant obligations. Before asking a parent, friend, or family member to co-sign, discuss the implications, especially concerning payment responsibilities in case of unforeseen circumstances.

Generally, lenders cannot mandate a co-signer, even if you’re married, unless you’re applying for joint credit.

How much is my trade-in worth?

If you plan to trade in your current vehicle, reputable third-party websites like Consumer Reports, Edmunds, Kelley Blue Book, and NADA Guides can provide approximate values.

Once you determine its worth, you have the option to trade it in at the dealership, negotiating the value credited towards your new car purchase. Alternatively, selling it privately and using the proceeds as a down payment is another route to consider. Both choices reduce the amount you’ll need to borrow, so opt for the one that maximizes your savings.