Looking to get a car loan? Here’s what to know and how to get one

This content is sponsored by PenFed Credit Union.

If you’ve decided it’s time for a new car, you’ve likely already researched the model, color and features you’d like it to have – but don’t forget about the cost and auto loan options before you visit the dealership.

To get a car loan with the best interest rate, it’s important to shop lenders, get preapproved and check your credit score before heading to the dealership, the experts at NerdWallet said.

“Don’t apply for an auto loan without checking your credit report first. If there are any errors or incorrect information on your report, such as fraudulent activity, you could be turned down for a loan or offered only a very high interest rate,” NerdWallet reported.

You can get a free copy of your credit report every 12 months from each of the major reporting bureaus such as Equifax, Experian and TransUnion at AnnualCreditReport.com. If you spot any errors or evidence of fraud, you can file a report to dispute it and get it corrected before applying for a car loan, NerdWallet noted.

Next, it’s beneficial to determine how much to borrow and what you can afford. How much can you afford for the monthly payment? How much can you put down? How long of a loan would be best for you? There are all good questions to ask yourself as you determine expenses, Business Insider reported.

PenFed Credit Union has an auto loan calculator that helps estimate your costs based on the purchase price, down payment, term of the loan, interest rate and more. Check it out here.

Once you have your credit score and budget for car, you can move on to researching auto loans from different lenders. Business Insider noted that credit unions, banks and online lenders are good places to look. Dealerships also offer financing, but you may want to reconsider going with the dealership offer, John Van Alst, a lawyer with the National Consumer Law Center, said on NPR. He said the dealership is allowed to jack up the rate it offers you above what you actually qualify for.

In your research, compare quotes from the lenders to find the best deal for you.

“Your own bank or credit union may give you a preferred rate, especially if you agree to automatic loan payments from a checking account there,” NerdWallet reported.

Once you’ve narrowed down the lender list, apply for preapproval – the bank’s way of conditionally saying that they will lend the money to you. With preapproval, a lender reviews your credit report and other information to determine a loan amount and rate you are likely to receive.

“You can get preapproved by as many lenders as you’d like — you’ll want to check with a few lenders to compare the interest rates they offer,” Business Insider wrote, noting that after you’ve compared the offers you can accept one you’re happy with.

Getting pre-approved does slightly lower your credit score because of the hard inquiry, the experts at PenFed Credit Union said. You may want to shop around and get preapproval from many lenders, and as long as you get those preapprovals within a 14-day window, your credit score is only affected once, PenFed adds.

Now comes the fun part – picking out that new ride! But take into consideration any limitations with the loan offer, NerdWallet recommends. For example, are some brands excluded? Are there dealership requirements? Or are there time restrictions on how long you have to use the loan?

Don’t forget to test drive – and focus on the cars within your budget, Dianne Whitmire, who sells cars at a Los Angeles Toyota dealership, told NPR. That means you may want to get a salesperson who is OK with showing you a bunch of cars and not being too pushy about getting you to buy a pricier car. Whitmire added.

Once you’ve decided on the car, choose and finalize your loan. NerdWallet recommends checking to confirm there’s nothing sneaky in the contract like hidden fees, longer loan terms, add-ons you didn’t request or an early payoff penalty.

All that’s left to do is drive your new wheels onto the open road – and make sure you’re set up to make payments on time. Auto pay can be set up through your lender online or over the phone, and some lenders offer a small interest rate discount when you sign up for those automatic payments, Business Insider reported.

NerdWallet noted that there can be added benefits to automatic car loan payments, too.

“Taking time to do this helps you build a history of on-time loan payments, an important contributor to your credit score and ability to get a loan with better rates in the future.”

Read more about auto loans on PenFed Credit Union’s website. With PenFed Credit Union, you can refinance your auto loan from another lender and earn a $150 bonus. This applies to refinance loan applications funded between Feb. 12, 2022, and March 15, 2022. Read more here.

PenFed Credit Union is federally insured by NCUA.

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