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How to Get a Car Loan and Mistakes to Avoid

Updated on October 8, 2017
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This author has written several automotive articles, both consumer-related and technical. See separate "Person of Interest" profile page.

Also includes a couple very important tips for when buying a new or used car.

And as for getting a car loan when your credit history is less than perfect, here is probably the most important tip of all...

  • The larger the down payment you are willing to make, the more inclined the financial institution will be to give you the loan.

How to get a car loan
How to get a car loan

Both new and used car sales continue to fluctuate, and so the demand for car loans does the same. As demand fluctuates, so do the shenanigans and other nonsense by dealership finance departments and other lenders.

This page will provide you with what you need to know about getting the best possible rate on your auto loan. Failing that, it will at least keep you from getting the worst.

How to Get an Auto Loan

Things to do and not do.

Clean Up Those Credit Reports

First thing you need to do is get copies of your credit reports. You are entitled to one free report a year from each of the three major reporting agencies. The most legitimate website to get them from is They will make you work for it by subjecting you to a bunch of sales pitches for their non-free products, but this is the site consumer groups and others recommend.

Review your reports. If you find any errors negatively impacting your credit score, you will have to jump through whatever hoops are necessary to get them fixed. Most loan officers don't even seriously bother to look at the reports; they just look at the credit score. Have the wrong credit score and you may not even be able to get an auto loan. Have an unfairly low credit score, and you will be paying hundreds and possibly even thousands more in interest over the course of your car loan, not to mention being subjected to higher monthly payments.

It is imperative your credit score be as high as possible. One doesn't have to be a rocket surgeon to know the higher your credit score, the lower the interest rate on your auto loan will be. In fact, reading this Credit Score Guide for Beginners would probably be a good idea.

Avoid Auto Dealer Financing

Don't do this! Car dealerships and used car lots are usually the absolute worst place to get an auto loan.
Don't do this! Car dealerships and used car lots are usually the absolute worst place to get an auto loan. | Source

Seriously, you might as well go to one of those loan shark outfits you see at the mini-malls. The auto dealers will use every trick in the book against you. They make as much or more money on the financing as they do on the car sale, itself. More often than not, whatever interest rate is initially promised invariably runs into a "problem"; and they will insist they can only do the financing at the higher interest rate and higher monthly payments. It's even been reported they will sometimes pull this stunt after the car is already sitting in your driveway.

As a side note, by all means ask about their zero financing they constantly advertise. Problem is, somehow nobody every seems to qualify for it... If you do happen to be one of the lucky few, well and good. But don't count on it.

And while we're at it... When you have decided to visit a particular dealership or used car lot, it wouldn't hurt to first check them out at RipOffReport and the BBB.

Best Way to Get a Car Loan Is Your Financial Institution...

With any luck, your existing financial institution has already poked you with a stick trying to get you to get an auto loan with them.
With any luck, your existing financial institution has already poked you with a stick trying to get you to get an auto loan with them. | Source

Your first resource should be your existing bank or credit union. Presumably you have been with them for awhile and are considered to be a good customer. What you would really like to accomplish is to get a pre-approved auto loan from them; succeed and your problem is solved.

Do not mention your pre-approved loan to the car dealer prior to closing the deal on your car purchase price. Otherwise they will raise the car price to offset the money they are not going to make from the financing.

If your financial institution seems somewhat reluctant about the pre-approval idea, don't push it. Stay lovable and don't burn that bridge just yet. Ask about and pave the way to apply for an auto loan with them after you have negotiated the price for the car.

Shop Around...

Did your existing financial institution fail to come through? Fine; once you've got the car situation taken care of, your next project will be to find a better place to do your banking business.

Give your regards. Select "auto" from the menu at the top of the screen. Use their search feature to see what the best auto loan rates and conditions are, etc. Don't actually make an application just yet.

Check out your local banks and credit unions. Visit their websites. See what their rates, fees, and conditions are. Again, don't actually apply.

There are also some worthy exclusively-internet entities out there who do car loans. Just be sure to research them first. You do not want to get tangled up with the wrong one.

Network! By all means ask friends, neighbors, co-workers, etc. for recommendations as to where to get the best car loan. Applying for an auto loan at a place where you can use an existing good customer as a reference certainly won't hurt.

Also be attuned to what people say about auto loan places to avoid.

Obtaining a Car Loan from Other Than Your Existing Financial Institution

This is all a pain in the neck, but even a 1% loan rate savings can add up to a significant amount of money over time. Let's hope your existing bank or credit union came through, so you can avoid all this.
This is all a pain in the neck, but even a 1% loan rate savings can add up to a significant amount of money over time. Let's hope your existing bank or credit union came through, so you can avoid all this. | Source

Finding and Applying for the Loan

Well, you've done your homework. Time to apply for the loan.

Pick and rank your best five candidates from your research. Work your way down the list. Make it known you are shopping for the best rate; this accomplishes two purposes:

  • You are implying you have no concerns about being accepted for the loan, your only concerns are as to terms. Appearing confident favorably affects perception.
  • You will not appear desperate or sneaky when it is noted you are making multiply inquiries.

In some cases you will have the option to apply in person or via their website. Put some thought into what would work best for you in that particular situation.

Do make all your applications within a 30-day time frame. Multiple loan application inquires will reduce your credit score. But if you make all your applications within a 30-day period, it is supposed to be categorized as only one inquiry by the credit reporting agencies.


The above information should work equally well as to getting the best motorcycle, truck, boat, or even airplane loan rates. However, if the boat or airplane is over a 100K, then you can probably afford to get a financial adviser involved. Preferably one with lending institution connections.

Yes, getting the best auto, truck, or SUV loan rates can be a lot of work and a pain in general. The more effort you put in to it, the more money you can save. One thing you can do is to make the project an iterative process, i.e., don't try to do it all at once. Just do one or two aspects of it a day. It will be done before you know it.

A Couple Car Buying Tips...

Buying a New Car

New Car Buying Tip

There are reports saying buyers can get a better price through the website than through going to the car lot. There may even be a choice of websites, i.e., manufacturer website vs. dealership website.

Every manufacturer does things their own way. As an example, the manufacturer website may simply refer you to the appropriate dealership website. Or not. Things are always changing.

It should also be noted more and more dealerships are directly owned by the manufacturer.

Buying a Used Car

Used Car Buying Tip

When a dealership takes a car in trade-in, one of two things happens to it...

  • If the dealership thinks it's a good car which will outlast their warranty program, they will give it a tune-up, detail it, and put it in their used car section.
  • If they don't think it's such a good car, they'll sell it off at a wholesaler's auction and it ends up in some used car lot.

What is the significance of this to the used car buyer?

  • The better cared-for, more reliable cars are to be found in dealership used car sections.
  • The more tired, riskier cars are generally at places exclusively selling used cars.


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    • profile image

      Daniel Bryan 15 months ago

      Credit report is very important in getting loan from financial institution. A good credit report can help you to get maximum fund.

    • profile image

      Neil Brannan 2 years ago

      This definitely is a hugely helpful post. Getting a car loan can be a tedious task if not done properly. I was planning to buy a new car and had gone through some auto loan rates namely from Aspire FCU(New Jersey). It looked interesting but Googled to find out if I could get a better one and ended up here. Maybe, I'll have to start over again.

    • p10kabhijita profile image

      Abhijit Aswath 5 years ago from India

      I am gonna keep this in my bookmarks. Will need it when I am ready to buy a car. Thanks for sharing this info. Voted up :)