A Smart Way of Financing a Car: A Complete Guide

To dramatically lower the cost of your auto financing, use competing loan offers from the dealership, make a 20% deposit, and limit the loan period as brief as you can. Oh, and of course, never buy a car you can’t genuinely afford. When buying a new car, one of the biggest mistakes individuals make is neglecting to account for the cost of auto loans.

Let’s say, for illustration, that you persuade the dealer to deduct $2,000 from the asking price. Fantastic work

1. Before you visit the dealership, check your credit score.

Checking your credit record and score is the first step to obtaining the best vehicle loan. Through Credit Karma, you can do it right now and without charge.

Dealerships frequently promote very competitive financing rates on brand-new vehicles: 2.9%, 1.9%, and even 0%. The fact that these rates are exclusively accessible to auto buyers with the finest credit—specifically, those with a score of 750 or higher—is hidden in the fine print.

If your credit is bad, dealers and banks will nonetheless “grant” your car loan. That’s because they are confident that they can charge you exorbitant interest, they have the right to simply confiscate your property if you don’t pay.

2. Before traveling, acquire finance quotations if your credit is less than ideal.

Most of the time, the dealership will provide the best financing rates if your credit score is excellent (750+). In this case, you really don’t need to shop around in advance for the best deals, which I honestly never claimed during my entire time at Money Under 30, I swear.

This is so that those with exceptional credit can choose from among the best offers from a variety of lenders competing for your business, as the dealer will operate as a broker and present them with.

However, the situation is quite different if you have a bad credit history.

3. Maintain the time as briefly as you can.

Regardless of your credit rating, a dealer will always try to sell customers a car with low monthly payments, no down payment, and protracted loan terms of four, five, or even six years.

The antithesis of what you want is this.

Lower monthly payments are a sleazy, tried-and-true sales trick. Dealers favor them because to their

  • Make it appear as though you can afford a more expensive car than you can
  • Make it appear as though you are receiving a deal when you are actually being taken advantage of.
  • Make space, so you can sell more of your products.
  • Confound purchasers to ease negotiations
  • Please their lenders, as they will profit greatly from you in the form of interest.

4. Deposit 20%.

You wish to reduce the principal of the auto loan in addition to decreasing the period.

The total amount you borrow and must pay interest on is the loan’s “principal.” A dealer who offers you a loan with no down payment is essentially telling you to increase your principal as much as possible so that my lender may charge you a higher interest rate.

Never do it!

Put at least 20% down on your new vehicle to lower your principal and, consequently, the overall amount of interest you’ll have to pay.


The best way to purchase a car is with cash, unless you’re looking at 0% or another extremely low APR (annual percentage rate). If you need to secure a car loan (whether it’s a personal loan or dealer finance), it actually pays to be as realistic as you can.

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