Best Auto Loan Rates

Nearly half of Americans rely on car loans to finance a vehicle purchase. Automotive loans, no doubt, provide great options for people who can’t afford to pay cash but need a car.

While many see owning a car as a necessary requirement of modern life, accessing affordable auto loan is getting out of reach for most Americans.

According to an Experian auto loan industry study published in March 2020, Americans now carry car loan debt valued at 1.3 trillion USD in 2019 which when compared to a decade ago has grown by 81 percent. 

On average, each American now carry more auto loan debt than a decade ago at 19, 231 USD a 25 percent increase from what it was in 2009.

The upward car loan trend makes the auto loan market the third-largest consumer credit market in the U.S. only behind mortgage and student loans.

Granted there has been several products and services since the last decade that had tried to make car loans more affordable. These loans are usually structured in such a way that consumers can pay off the debt in small chunks – often making monthly instalment payments for a fixed term.

When applying for an auto loan, buyers are expected to make a down payment of at least, ten percent of the original car value and the rest of the loan is then secured with the car. This way, if the consumer defaults on the loan, lenders can move in to take possession of the vehicle to recoup their loan.

Where Americans source their auto loans

Most auto loan contracts are signed at the dealership where the car is purchased. This method of securing a car loan is convenient for consumers since they don’t have to shop around for the loan. But, at the same time, leaving out an opportunity to receive better car loan rates from other lenders.

Here’s the thing, a dealer is usually compensated for originating loans. So when a customer rings up a dealership for a car purchase, the dealer often pushes financing options that ensure they earn more in commission without considering what’s the best auto loan rates for the consumer.

However, consumers can bypass dealers and go directly to lenders such as banks, credit union, or other lending institutions to avoid inflated rates.

That said, how can a consumer find the best auto loan rates to finance a vehicle purchase?

How to find the best auto loan rates

There are many reasons to want the best auto loan rates for your car purchase. Perhaps, you have a specific budget you are not willing to go beyond for a car or maybe looking for a loan term that gives you enough runway to pay monthly without overstretching yourself financially. 

No matter your reason, shopping around for the best auto loan rate that is perfectly suited for your unique situation can help you meet your objectives.

Here’s how to find the best auto loan rates:

First, check and improve your credit score.

See. Your credit score can impact how much you pay in interest for your car. The higher your score, the better positioned you are to negotiate fair terms. On the other hand, if you have a low credit score, you don’t have enough wiggle room to negotiate – you are much likely to go with what the dealer or lender gives you.

So, before shopping for a car loan, be sure to check your credit score on annualcreditreport.com. Thankfully, you are entitled to, at least, one free credit checks from each of the three major credit reporting agencies.

With your credit report, you can determine whether your score is high enough to get good deals from lenders or you need to improve your score first before applying for the car loan.

Save up and make a significantly higher down payment.

The more you can afford to pay in down payment, the better. When you make a significantly higher initial payment, you lower the overall auto loan cost.

Here’s the thing, a large down payment means you only have to borrow a smaller amount to finance the vehicle purchase, which in turn means, you only get to pay interests on a small amount.

Also, since you are paying a substantial amount in the initial payment, you can negotiate terms you can comfortably afford.

Consider a novated lease.

While this option may not be for everyone, if the car you intend to finance is going to be used partially or fully for business-related tasks, you may want to consider entering into a three-way agreement with your employer and the lender.

What happens is that your employer assumes responsibility for the loan on your behalf while you repay the loan to your employer through deductions on your pre-tax salary.

The advantage of this option is that your employer can negotiate a better loan rate than you can since the lender considers your employer as more financially secure than you.