Shop for Auto Loans before Shopping for a Car

It's pretty common for car buyers to do extensive research before even setting foot in a dealership. Unfortunately, all of this research tends to be focused on the car, rather than investigating auto loan options. That's an oversight that can cost you money each and every month you make a car loan payment.

With consumer guide books and Internet resources, buyers often arrive at the showroom able to quote gas mileage, crash test ratings, and resale statistics. Today's informed consumer may also know what kinds of discounts below sticker price are customary for the model in question. In short, car buyers today are better prepared than ever to shop intelligently for their vehicles.

On the other hand, when it comes time to get a car loan, these same educated consumers are likely to nod their heads and accept whatever financing options the dealership offers. They go in blind as to what other auto loans may be available, and without this information, they are powerless to negotiate.

All Car Loans Are Not Created Equal

Some advance research can be fruitful, because not all car loans are the same. Different lenders offer different interest rates, and there may be different processing fees as well.

At minimum, there are two pieces of research on auto loans a prospective car buyer should do before going to a car dealer:

  • Compare lenders to get a sense of what normal market rates and fees are, and who is offering the best terms.
  • Check your credit rating to see if you can expect a lender's best rate, or whether credit problems will require you to pay a higher interest rate.

Advance Research Leads to Better Decisions

There are a few ways in which this advance research can help you do better when you get a car loan:

  • Shopping around may reveal better terms than the dealer-sponsored financing is offering. After all, who ever got the best deal by limiting their financing options to one lender?
  • Even if you decide to go with dealer-sponsored financing, knowing the marketplace can help you negotiate.
  • Identifying any potential credit problems upfront may help you avoid paying a higher interest rate. You may decide to take steps to improve your credit before buying, or you may view a cash payment as a more cost-effective alternative.

Once you've picked out a car and made a deal with the salesperson, it's very difficult to slow things down and start weighing all the factors that go into shopping for a car loan. Do your research in advance, and you will be in a position to make better decisions.

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