How to Get the Best Deal on a Car Loan

Auto Loans

To find an auto loan that will work with your budget, you’ll need to research costs, financing, and other factors before you go to the dealership to test drive the cars that interest you. In the current market, dealers want to sell, but banks are picky about providing car loans. Here are five ways you can save on your loan and get the best deal possible.

1. Shop around.

Before you even test drive a car at a local dealership, investigate the options for financing. There are several places where you can get an auto loan:

  • The car dealership
  • A bank
  • Your credit union
  • Online

Credit unions typically charge lower interest rates on car loans. If you have an account with a credit union, ask the union what percentage they would charge. Also, both banks and credit unions may give you an additional partial percentage point off the interest rate if you have your payments auto debited from your account.

2. Know how much the typical consumer pays.

Usually, the listed price of a vehicle is 5 to 10 percent more than what the dealer paid. Research the car’s value on consumer websites like Kelley Blue Book and Edmund’s. Sites like these ones list how much the dealer paid. Knowing this cost will prepare you for negotiation. Your target price should be about 5 percent above the dealer’s cost. Don’t pay the sticker price if you can avoid doing so.

3. Think about buying a used car.

Used cars normally cost about 50 percent of a new vehicle’s price. If you buy a preowned car, ask the dealer for a printout of the vehicle’s inspection history. After you settle on pricing and financing, have the dealer put into writing that the sale is pending your mechanic’s inspection. A dealership employee should be able to drive the car to your mechanic for inspection. If you don’t have a mechanic, check with your state’s auto association to find one.

4. Don’t disclose your budget for monthly payments to the dealer.

You should certainly know your monthly budget for payments before you walk into the dealership. However, if the dealer knows how much you can afford, he or she can adjust the car’s price or interest rate upward to match your number. If the salesperson is pressuring you to name your budget, just tell him or her that you want to look at some vehicles and settle on the price before you talk about financing.

5. Pay the shortest-term loan that your budget will allow.

According to, the average car loan is close to 5.5 years. That may sound like a reasonable schedule. However, the longer it takes to pay off the loan, the more interest you’ll be paying in the long run. Aim for an auto loan that you can pay in four years or less. Also, try to put down at least 20 percent of the cost. Paying money up front will decrease your monthly and overall costs.

In order to trim the bottom line of your car loan, do homework on the vehicle’s cost, your options for financing, and your budget before negotiating with the dealer. Fifteen minutes of research may save you thousands of dollars.


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