How to get a good car loan – here are six tips
Getting a fair deal on an auto loan or lease starts before you set foot on a car lot.
Thousands of car buyers complain every year about their loan or lease. When planning to buy a car, here are some tips to consider:
If you haven’t checked your credit score in the last year, do it now. This will help you understand what kind of interest rate and other terms you can expect. Information is power. Being afraid to look at your score doesn’t mean it doesn’t exist. (It’s just like being reluctant to step on the scale doesn’t mean you’re not overweight.)
You may have access to your credit score on your monthly credit card statement or even your deposit bank. It may not be a FICO score but it should give you an idea about whether you have a score that’s great, good, fair or not so good. Or you can check your reports from all three credit bureaus through annualcreditreport.com and it’s free by federal law. Do not go directly to the Equifax, Experian or Transunion websites. They may try to charge you or lure you into credit monitoring plans.
Shop for financing days or weeks before you shop for a car. If you find a car you like and then have to scramble to find a lender, you may be faced with settling for lousy terms. It’d be like booking a wedding venue and then trying to find a partner to marry.
If your credit score isn’t so great, you may need to put down a bigger downpayment to get a decent interest rate. It’s helpful to know this up front.
Once you get your financing lined up, freeze your credit reports online or by phone. By freezing your files, you’ll prevent a slimy car dealership from accessing your credit reports without your permission. Yes, this happens all of the time — even when you don’t provide your Social Security number, only your driver’s license for a test drive.
Don’t sign anything that uses terms such as “conditional delivery” or “spot delivery.” This means your terms — including your interest rate — aren’t final for one to two weeks. What could happen? The dealership could call you next week and tell you your interest rate is much higher than you expected and, if you don’t like it, you need to return the car today.
If you feel you have no choice but to sign a document like this, consider telling the dealership you don’t want to drive your car off the lot until financing is final.
Say no to overpriced add-ons. You don’t need extra insurance products or service plans. Car dealers may add without asking or misrepresent what they are or that they’re optional. Here are some examples of junk fees that car dealers sometimes add without giving the buyer the option of declining:
Nitrogen-filled tires
These tires often contain no more nitrogen than actual air. There’s no provable benefit anyway. Regardless, how would you know?
Guaranteed Asset Protection (GAP)
If you have a loan on the vehicle, GAP coverage would pay off the loan if the car is totaled and you owe more than it’s worth. Sometimes, dealers try to add on this coverage even where it wouldn’t apply or is duplicative of a consumer’s existing insurance policy.
Roadside assistance
Often included whether you want it or not, or already have it, through something like AAA or OnStar.
Extended warranties
These are often hugely overpriced through a dealership. If you choose to get an extended warranty later, you could pay as you go. If you’ve paid up front and you sell your car or total it, you don’t get a refund.
Steep document prep fees
Is some doc prep reasonable? Probably. It’s aimed at covering back-office costs to prepare documents, file things, etc. Interestingly, average doc fees vary widely across the country, from roughly $100 to $1,000. It is concerning that the fee is usually presented with taxes, title, a temporary plate and other official fees, making it seem unavoidable.
Stolen vehicle recovery systems
May be desired by some owners, but it should be presented as an option. A vehicle owner may want to price-compare with vendors after the purchase.
Paint protection
May be desired by some, particular for the front end, but it shouldn’t be just slipped in there. A consumer may want to shop prices after the purchase.
VIN etching
Getting this at a dealership can cost $200 to $500. You can do it yourself for less than $50, or shop around for a vendor who charges a reasonable price.
Vehicle preparation fees
Can cover washing the car, vacuuming it. Really?
Pre-delivery service fee
Somewhat fishy. This can cover cleaning, inspection and minor maintenance. Wouldn’t at least the cleaning and inspection be done automatically before a car is sold???
Pre-delivery inspection fee
Ditto. May include services like checking tire pressure, fluids, lights, etc. Why would a dealership sell a vehicle without doing this?
Reconditioning fee
Can be hundreds of dollars to prep a vehicle for sale. Wouldn’t reconditioning add to its value and lead to a higher sale price anyway, without the fee? And isn’t this duplicative of the pre-delivery inspection fee?
With poor or no credit, you may think you have to purchase a car from a dealer advertising “no credit-check” loans. Often this is not the case, and exploring options from traditional lending companies may result in a more affordable and safer loan.
Never sign any documents until you or a trusted relative or adviser have read all documents you are asked to sign. Do not sign any document that states the transaction is different than you were told. Always keep a copy of everything you sign. If the dealership refuses to give you copies, take photos with your phone.
If you get a call that your financing has fallen through and you have to return your car or pay more than what you agreed, call a lawyer.
For more tips, visit our Buying a Car consumer guide.
Topics
Authors
Teresa Murray
Consumer Watchdog, PIRG
Teresa directs the Consumer Watchdog office, which looks out for consumers’ health, safety and financial security. Previously, she worked as a journalist covering consumer issues and personal finance for two decades for Ohio’s largest daily newspaper. She received dozens of state and national journalism awards, including Best Columnist in Ohio, a National Headliner Award for coverage of the 2008-09 financial crisis, and a journalism public service award for exposing improper billing practices by Verizon that affected 15 million customers nationwide. Teresa and her husband live in Greater Cleveland and have two sons. She enjoys biking, house projects and music, and serves on her church missions team and stewardship board.
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