Don’t Get Taken for a Ride: How to Get the Best Car Loan


Our cars are so much more than just how we get from Point A to Point B. They are symbols of our freedom, our independence, and, yes, often they are status symbols as well. For most of us, automobiles represent the second largest expenditures (after our homes) that we make in our lifetimes, but sometimes we needlessly overpay.

A good starting point to keep in mind is that “your car is not an investment, says “Quite the contrary: Cars depreciate like crazy. For this reason alone, it’s not smart to pay interest on a car loan. What happens in most cases is that the car depreciates and the value of the car drops faster than you repay the loan, leaving you upside down or underwater (when you owe more on the loan than the car is worth). That said, many of us need cars to get to our jobs and don’t have the cash lying around to buy a reliable ride. So we get a car loan. That’s cool, but there’s a difference between using a car loan wisely and using it to buy a lot of car you can’t afford.” Here are three simple three-steps for getting the best car loan possible.

Step 1: Whip your credit into shape. Before you start looking at cars at a dealership, a used car lot, or even online you should take a close look at your financial situation. Start by checking your credit report. Your credit score will establish how much you qualify to borrow and the interest rate you are likely to pay. The difference in interest rates between an excellent credit rating and a poor one can mean hundreds, even thousands of dollars in interest. Fixing an error or incorrect information on your credit report can save you meaningful amounts of money. “If your credit is subprime or poor—typically a score of 600 or lower—and if you don’t absolutely require a car right away, consider spending six months to a year improving your credit before you apply”, advises “Making payments on time and paying down credit card balances can help bolster your credit so you can qualify for a better loan.”

You can get at least one free copy of your credit report every 12 months from each of the major reporting bureaus (Equifax, Experian and TransUnion).In 1961 the rock and roll group The Miracles sang this timeless advice:”My mama told me, you better shop around” which brings us to Step 2: Shop Around for Lenders. Consulting with multiple lenders of different types like banks, credit unions, or online lenders before you step onto a car lot will give you an idea of your options. National Public Radio reports that “many people don’t realize it, but the dealership is allowed to jack up the rate it offers you above what you actually qualify for. With your credit score you might qualify for an interest rate of 6%, but the dealership might not tell you that and offer you a 9% rate. If you take that bad deal, you could pay thousands of dollars more in interest.”

Be sure to check with your own bank or credit union. It may give you a preferred rate for being a customer.

“Once you’ve narrowed your search to a few lenders, it’s time to request interest rate quotes and compare offers,” advises. “Getting lenders to compete for your business gets you the best rate because each one weighs factors in your credit report differently. This means car loan interest rate offers can differ wildly. If you’re really ready to buy your car, getting preapproved for an auto loan offers several advantages. It strengthens and simplifies your negotiating power at the dealership by allowing you to only haggle about the price of the car, not the monthly payment.”

Finally, Step 3: Put money down and pay for extras with cash. To avoid being upside down, owing more on the loan than your car is worth, make a meaningful down payment of at least 20%. Most car dealerships don’t require buyers with good credit to make any down payment. However, points out “driving off in your new car without putting a penny down is tempting, but it’s risky. If you find yourself suddenly needing to sell your new car, you may not be able to if you owe more on the loan than the car is worth. A larger down payment ensures this doesn’t happen.”

Another, often overlooked, way you can get upside down is with the taxes, fees and other auto extras that can get rolled into your loan. But those costs increase the amount of your car loan but do not increase the value of your car. Don’t finance taxes, fees, and extras; pay for them with cash.



Sean D. Cuddigan
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SSA and VA Disability Attorney in Omaha, Nebraska
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