Everything feels pricier these days, and car loans are no exception. End up with a poor rate, and your budget gets that much tighter. You want to keep costs down, but how can you get the best car loan rates to make it happen? Start here! 

We’ve got key tips for finding the best car loan rates. Check out the rundown below, and keep in mind that the credit union car loan rates you’re likely to find at your local credit union are typically some of the best available! 

Know your credit score

So, how can you get the best car loan rates? Well, first, it helps to know your credit score. Your score is one of the top factors auto lenders use to determine how much they will let you borrow and the interest rate they will charge on your loan. 

Your credit score considers critical aspects of your borrowing behavior, such as how often you make late payments, how frequently you apply for new credit accounts, and how much you borrow on credit cards. 

You can get a free copy of your credit report yearly from the three major credit bureaus. The higher your score, the more likely you will be approved for an auto loan, and the better your rate will be.

If you find your credit score is too low to get the best car loan rates (generally below 680), try focusing on the following actions to help improve your credit score:

• Pay your loan and credit card payments on time every month.

• Keep your credit card balances low. Using less than 30% of your available credit is a best practice. 

• Don’t apply for new credit frequently or immediately before seeking a loan.

• Don’t close old credit accounts around when you plan to apply for a loan, even if you’re not using them.

Research lenders and learn how to compare car loan rates

No two lenders are the same. That’s why one of the essential tips for finding the best car loan rates is comparing offers from a few different lenders, including bank and credit union car loan rates.

When comparing car loan rates, many people will focus on the monthly payment amount. Although it makes sense to consider how much a car loan will take out of your monthly budget, if you only focus on what you can afford each month, you’re liable to overpay for your auto loan in the long run. That’s why it’s vital to explore all important loan components. 

When comparing car loan rates, be sure to look at the following: 

• interest rate

• annual percentage rate (APR)

• length of the loan (the “term”)

• total interest you’ll pay over the life of the loan 

The APR is particularly handy for directly comparing loan offers, as it lumps your interest rate and any loan fees together to give you an idea of the total annual cost.

During the rate comparison process, lenders often provide preapproval offers using a soft credit check that won’t hurt your credit score. This is a quick way to compare potential car loan rates. However, know that your ultimate car loan rate is still subject to change until you submit a complete application.

Consider loan terms

Don’t overlook the loan term as you consider these tips for finding the best car loan rates. Car loans typically span 12-month increments ranging from 24 to 60 months, although 72- and 84-month loans are becoming more common. The time frame for repaying your loan significantly impacts your loan’s interest rate and monthly payment amount.

How can you get the best car loan rates based on the loan term? A shorter payment term will reduce your overall loan cost because you will pay less interest. However, remember that your monthly payment will likely be higher in exchange.

Beyond considering the payment amount you can afford each month, consider how quickly a vehicle is likely to depreciate before deciding on a short- or long-term loan. Your goal should be to balance getting the best rate with paying it off quickly so you don’t go underwater on your loan. For example, a small down payment on a previously owned vehicle combined with a loan of five years or more could mean you end up owing more than your car is worth.

Negotiate with lenders

Don’t be afraid to negotiate with lenders. Rates and terms aren’t set in stone, and you could be surprised at what your lender may adjust simply because you play a little hardball.

Some negotiation strategies work better than others, though. If you have a few offers in hand, you may have the leverage to ask for a lower rate or longer term. If you’re trading in a vehicle, you might also be able to negotiate the trade-in offer to improve your down payment and secure a better loan.

Auto dealers are notorious for stacking on additional warranty coverage and other extra options that get lumped into your total loan balance. Discuss each option in detail and be firm about any add-ons you don’t want. Sometimes, you can negotiate to reduce lender fees, such as preparation, origination, or document charges. 

Watch out for hidden fees

As you learn how to compare car loan rates, it is important to watch for hidden fees. Some of these fees are negotiable, as noted above. Others, such as additional forms of insurance, are likely unnecessary in many circumstances.

Common hidden fees that can inflate your car loan include:

• Origination fees. Also known as acquisition fees, these expenses are often calculated as a percentage of the original loan amount and are intended to cover paperwork expenses.

• Market adjustment fees. Dealers may add these fees when vehicles are in high demand and the supply is low.

• Credit insurance. This optional insurance can help cover loan payments if you become disabled, die, or cannot make payments for other reasons outlined in the policy.

• Guaranteed asset protection (GAP) insurance. This insurance covers the difference between what you owe and what your insurance company pays if your car is totaled.

• Prepayment fees. Typically around 2% of the outstanding balance, these fees could kick in if you attempt to pay off your loan early. 

• Registration fees. These fees are non-negotiable and vary by state. They often include registration, license plate transfer, and title fees.

Further resources on how to compare car loan rates

Enter the car-buying fray well-prepared with these additional tips for finding the best car loan rates:

• Will you buy or borrow? If you’re comparing car financing options, you might also consider leasing. Be sure to understand the difference between financing and leasing.

• Get to know the Truth-in-Lending Act. Knowledge is power. The TILA federal legislation protects you, the borrower, by requiring lenders to provide written disclosure on the full terms of your lease.

• Plan your purchase strategy. If you’re undecided about buying a used or new and how it could impact car loan rates, take a moment to review this guide.

Discover how much you can save with credit union car loan rates 

Ensuring you get the best vehicle financing for your money is about more than just asking, “How can you get the best car loan rates?” Yes, credit union car loan rates are often the best in the market, but they also come from a community-based lender you can trust. Schedule a visit with your local credit union today!

Did you know?

Credit union car loans often come with the best available rates. In fact, credit union rates on new car loans in the first quarter of 2024 were nearly 2% lower than comparable loans from traditional banks.