The Best Ways to Finance a Vehicle

by Tim Plaehn

Getting a 2 percent better car loan is like saving $1,000 on the purchase price of a car. The financing you use to pay for your car is as important as negotiating a good price. Do your research and the financing on your next car will not be an expensive lesson.

Personal situation

There are several areas under your control that will help you get a lower rate on a car loan. Good personal credit will get a better rate than bad credit. Shorter term loans will get a lower rate. Terms longer than 60 months will pay a significantly higher rate. A down payment or positive equity on a trade-in will qualify for a lower rate than rolling negative equity into a new loan.

Financial institutions

Check the auto loan rates of the financial institutions where you do business. Banks may offer special loan rates for good customers. Credit unions usually do a lot of car loan business and may have very competitive rates. A car dealership may be able to send your loan application direct to your credit union and get approval while you are in the dealership. The bank or credit union can pre-approve you for an amount and rate before you go car shopping. This will give you a distinct advantage when negotiating in the dealership. Numerous websites offer auto loan comparisons and online applications. Be careful of hidden fees and understand the best rates are for only very well qualified applicants.

The car dealer

New car dealerships have access to the captive finance companies of the car manufacturers. The car companies often offer below-market finance rates to promote car sales. The promotional rates may be available to applicants with less than top tier credit scores, so if you have some glitches on your credit report check into the manufacturer's special rates. Special rates are often in lieu of cash rebates. Calculate the payment with the rebate and best standard financing compared to the payment with special rate financing. Car dealerships also get very attractive car loan rates from banks. The dealership will add several percentage points to the rate for customer loans and make a profit on the higher rate. If you come into the dealership with a good rate from your bank or credit union, they may offer you a better rate to keep the loan in-house. Comparing all of the sources for car loans before you make your next car purchase will help you negotiate and save a lot of money.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

Photo Credits

  • Thinkstock Images/Comstock/Getty Images