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My Ocean Production/Shutterstock August 26, 2022 Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Bankrate logo The Bankrate promise
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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. 1 Negotiating the monthly payment rather than the purchase price
Although your car’s monthly price is important — and you should know in advance each month — don’t show your entire hand to the salesperson. If you do, you will give up your capacity for negotiating a lower purchase price. Once volunteered, a monthly car loan amount tells the dealer how much you are willing to spend. The salesperson could also try to hide other costs, such as a higher interest rate and add-ons. They might also pitch you on a longer repayment timeline, which will keep that monthly payment within your budget but cost you more overall. To avoid this, negotiate the price of each cost category separately and focus on overall cost. Loan Auto Key takeaway Never purchase a car based on the monthly payment alone; the dealer could use that number to place negotiations at a standstill or upsell you. 2 Letting the dealer define your creditworthiness
Your creditworthiness determines your interest rate, and a borrower with a high qualifies for a better car loan rate than one with a low score. Shaving just one percentage point of interest from a $15,000 car loan over 60 months could save hundreds of dollars in interest paid over the life of the loan. Knowing your credit score ahead of time will put you in the driver’s seat in terms of negotiation. With it, you will know what rate you can expect — and if the dealer is trying to overcharge you or lie about what you qualify for. What is a bad APR for a car loan
New auto loans had an average rate of 7.23 percent in the second quarter of 2022, according to data from . People with excellent credit qualified for rates around 2.96 percent, while people with bad credit had an average new car rate of 12.84 percent. Rates for used cars are higher — 11.35 percent across credit scores. And the average for bad credit was quite high, sitting at 20.43 percent. So, a “bad” annual percentage rate for a car would be on the upper end of these numbers. Legally, loans can’t have an APR over 36 percent. A bad APR will be subjective based on your credit score, but in general, you should find a lender that offers you an average rate or better. Loan Auto Key takeaway . 3 Not choosing the right term length
Car loan terms range from 24 to 84 months. It is easy to be attracted to a longer term because typically, the monthly payment is lower. But the , the more interest you’ll pay. To decide which is the best option for you, consider your priorities. For example, if you are the type of driver who is interested in getting behind the wheel of a new vehicle every few months, being trapped in a long-term loan might not be right for you. On the other hand, if you have a limited budget, a longer term might be the only way you can afford your car. Use a to understand what your monthly payment will be in order to decide which option is best for you. Loan Auto Key takeaway e. 4 Financing the cost of add-ons
Dealership profits are largely influenced by — especially aftermarket products sold through the finance and insurance office. If you want an extended warranty or , these items are available at a lower cost from sources outside the dealership. Wrapping these add-ons into your financing will also cost you more in the long run, since you’ll be charged interest on them. Question every fee you don’t understand to avoid unnecessary additions to your purchase price. If there is an add-on you truly want, pay for it out-of-pocket. Better yet, check if it’s available outside of the dealership for less. For aftermarket products, extended warranties and gap insurance, going to a third party is often cheaper. Loan Auto Key takeaway 5 Rolling negative equity forward
Being “” on a car loan is when you owe more on your car than it is worth. Lenders may allow you to roll over that negative equity into a new loan, but it’s not a smart financial move. If you do, you will pay interest on both your current car and your previous car. And if you were upside down on your last trade-in, chances are you will be again. Instead of rolling your negative equity into your new loan, try to wait to pay off your old loan before taking out the new one. You can also choose to pay off your negative equity upfront to the dealer to avoid paying excess interest. Loan Auto Key takeaway . 6 Not shopping around
Dealership financing is easy and convenient. But that makes it more expensive. Dealers know they can mark up their rates by a few percentage points. Shop around and from banks or credit unions before visiting the dealership. Doing so will give you an idea of the interest rates available for your credit score and ensure that you are getting the best deal. Once you are preapproved for a loan, you can negotiate with the dealership more effectively. After all, if they aren’t willing to beat the rate you already have, you don’t have to rely on their financing to get the car you want. Loan Auto Key takeaway . The bottom line
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SHARE: Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites.