Before you visit a dealership, get a car loan pre-approval from a bank or credit union. A dealer who arranges your financing can mark up the rate the lender approved and keep part of the difference. Walk in with a pre-approval, and the dealer has a rate to beat.
That markup is hard to spot, because the only rate you see is the one the dealer quotes. A rate carrying two extra percentage points looks like any other offer unless you have a competing one to hold against it.
Those two points cost more than the monthly payment suggests. On a $30,000 loan over 60 months, a 6% rate marked up to 8% adds about $28 a month. Over the life of the loan, that’s about $1,700 in extra interest.
A pre-approval is that competing offer. Before you set foot on the lot, you know the rate, the loan term, and the most you can borrow. The dealer’s financing stops being a number you have to trust and becomes an offer you can compare.
Take these steps in order.
- Apply with your bank and at least one credit union, since credit unions often price auto loans lower than banks do. A pre-approval can mean a hard credit inquiry, so keep all your applications inside one 14-day window. FICO and VantageScore both count the auto loan inquiries in that window as one.
- Agree on the car’s out-the-door price, with taxes and fees included, before financing comes up. That way the dealer can’t hand you a discount and take it back through the rate.
- Show the pre-approval and ask the dealer to beat its rate on the same term. Take the lower rate if the dealer offers one, and use your own loan if not.
- Before you sign, check the contract’s rate, term, and loan amount against what the dealer quoted.
The dealer can still win your loan, but only by beating a number you brought. If no one does, your financing is already lined up.
Editorial & Advertiser Disclosure: The editorial content on this page is not provided, commissioned, reviewed, approved, or otherwise endorsed by any advertiser. Opinions expressed here are ours alone, not those of any advertiser. The offers that appear on this site are from companies that compensate us. That compensation may influence which products we cover and where and how they appear on a page – including the order in which they appear – but it does not influence our evaluations, ratings, or opinions. We do not include every company or offer available in the marketplace.
Related:
