Get a Low Auto Loan Rate and Find the Perfect Car for Your Budget

Generally, most people know that a good credit score means more opportunity for you in terms of how low your interest rates can be and how much credit lenders are willing to give you.  But do you have a number in your head that represents “good”?

The FICO scale ranges from 300-850, and of course the higher your score, the “safer” you are considered and more likely to receive low auto loan rates, mortgage rates, etc. But where between 300 and 850 does “good” fall?  Here is a good general reference:

Very Poor:  Below 579

Poor:  580-619

Average: 620-659

Good:  660-699

Great:  700-759

Excellent:  760 and above
But, don’t be fooled by that spectrum.  Those are general ranges provided by FICO. Individual lenders set their own guidelines for who can receive the lowest auto loan rates, mortgage rates, credit card rates, etc.  For example, before our country’s recent financial crisis, many lenders considered a score of 720 enough to make one eligible for their lowest tier of rates.  However, since the crisis, a score of 740 and higher is now considered the new threshold by many.

So how can you begin to know if you are eligible for a low auto loan rate?  Or an auto loan. Period.  Well, first things first:  find out your current credit score.  Maybe you will be pleasantly surprised or maybe you will be better off waiting a few months for your loan.

You can get one free credit report from each of the three major credit bureaus (TransUnion, Equifax, and Experian)once every twelve months by going to AnnualCreditReport.com.  Your credit report will contain everything from your credit accounts (think bankcard, mortgage, auto loan, etc.) with your corresponding account open dates, limits, balances, and payment history to your credit inquiries (voluntary and involuntary), as well as any delinquent items that you may have in collections.

It is important to read through everything listed in your report.  Make sure that everything listed is in fact yours; erroneous information has been known to appear by no fault of the individual.  Once you know what is there, you will know what you can take note of any “dings” on your credit, such as late payments, collection items, etc.

One very important note is that your credit report is not the same thing as your credit score.  In fact, when you receive your free credit report your numeric credit score will be nowhere to be found on the report.  The score itself is a separate measuring tool that will need to be purchased, although rather inexpensively.

And, there’s just one more caveat.  Each of the three major credit bureaus has their own score for you, which can all be different from each other.  So, your TransUnion score could be 700, your Equifax score could be 710, and your Experian score could be 687.  Some lenders obtain all three scores when making lending decisions, others have one preferred bureau.

While your report and your score are two separate items, you will need to obtain both to be prepared to make improvements if need be.

And now that you know how to start on the path to getting the lowest rate auto loan, do you know what to do when you get to the dealership?

First and foremost, figure out what you can afford.  It’s difficult to hear the total cost of a car and know if it fits into your budget comfortably, barring extreme examples, like luxury vehicles that cost in the hundreds of thousands of dollars.

For example, saying, “Can I afford a $24,000 car?” may not be easy to answer.  But, thinking in terms of your monthly budget makes it easier.  “Can I afford $400 per month?” is much simpler to figure out.

Of course, the amount of your monthly payment depends on many factors aside from just the total price of the vehicle.  Using a financial calculator, like the one you can find on LSCU’s website, can help you factor in other considerations like your down payment, trade-in value (if you have one), the term of the loan you would like to consider (60 months is pretty standard), as well as sales tax and some other miscellaneous fees.

Within the calculator you can adjust all of these factors and work to find what works best for your budget.  You can even select “Monthly Payment” or “Purchase Price” depending on what number you are looking for:  select “Monthly Payment” if you have a price for a specific car that you’re interested in, input the other factors (down payment, trade-in, etc.) and figure out a good estimate for what your monthly payments will be if you purchase that car, and if those payments fit into your budget.  Or, select “Purchase Price” and input the ideal amount for your monthly payment, input the other factors, and see what purchase price is in your budget, then you can shop for vehicles in that price range.

Lastly, the one factor for which you may not be sure what to input into the calculator is the interest rate.  Remember, not all interest rates are created equal.  A not-so-competitive rate can end up costing you thousands of dollars by the time your car is paid off.  The dealership is only one option of many for financing; don’t forget to check credit unions.  Quite often, they offer rates much lower than their competitors.

If you’re anxious to get started, just take the lowest rate your local dealership or credit union is offering currently and add a couple of points to give yourself a ballpark figure.  So, if the lowest rate you found was 3%, put 5% in the calculator.  But, don’t forget that your rate could be higher or lower than that.  Then…happy car shopping!