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5 tips to get the best deal on a car loan
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More Americans are struggling to make their car payments on time. The numbers, while still low, are definitely on the rise.
According to the latest State of the Automotive Finance Market report from Experian Automotive:
- 60-day loan delinquencies in the second quarter of 2014 increased by 7 percent (from 0.58 to 0.62 percent) from the previous year.
- The rate of auto repossessions in the second quarter took a significant jump, up more than 70 percent (to 0.62 percent) from a year earlier.
"The rosy glow of perfect payment performance in the automotive space is beginning to tarnish," said Melinda Zabritski, senior director of auto finance at Experian Automotive.
The increase in payment problems was expected as the number of loans to subprime borrowers has grown since the Great Recession, Zabritski said.
Her advice to car buyers is simple: "When you buy a car, make sure it's something you can afford, something that truly meets your budget. That way you won't end up as one of these delinquency statistics."
To get the best loan deal, you need to do your homework. Here are five things you should do:
1. Check your credit reports.
Get a report from each of the three major credit reporting agencies: Experian, Equifax and TransUnion. Use the website annualcreditreport.com, which was set up by the federal government for this purpose.
"You want to check all three because you don't know which one the lender will use and you want to give yourself time to fix any mistakes," said Gerri Detweiler, director of consumer education for Credit.com. "I found a mistake when I went to buy a car a few years ago, and if I hadn't straightened it out, it would have cost me a lot of money."
Detweiler suggests that you also check your credit score. The interest rates you'll be offered—if you can get a loan at all—will be based on your score.
You can get your credit score for free from a number of sites, such as Credit.com, CreditKarma and CreditSesame. Some credit card issuers also provide it. This will not be the exact same score the lender uses, but it will give you a good idea of where you stand.
2. Shop around for the best rate.
You shop around to get a good deal on your new vehicle, so why wouldn't you shop around for the loan to pay for it? Most people don't. They go to the dealer without doing any homework.
"That just means you have a target painted on your back," said Liz Weston, personal finance columnist and author of the book, "Deal with Your Debt." "Bad things are going to happen to you when you haven't done your research and you don't have your loan lined up before you start shopping for a car."
Eight out of 10 car buyers finance at the dealership, according to the nonprofit Center for Responsible Lending. Maybe it's the convenience or the lure of ads that offer incredibly low-interest rates. Just remember, those super-low rates are only for customers with excellent credit scores.