How to get the best auto financing rates

When you go shopping for a new or used car, chances are you're not going to be paying cash. Most of us need to finance the deal, so auto financing rates are a concern. That APR makes a big difference in the actual cost of the vehicle by the time you've paid it off. There are several factors that play into your financing rate. The most important factor is, of course, your credit score. However, there are other elements which indirectly affect how much you end up paying for that vehicle. Here we have a look at how to get the best auto financing rate, as well as the best final cost.

It's smart to think ahead. If you're thinking about buying a vehicle and financing it, you want to do your homework well ahead of time. Taking the right steps a couple of months in advance can save you a lot of money on your auto financing rate.

Before you head out to find a vehicle, get a copy of your latest credit report. You are entitled to a free copy once a year. Look it over to be sure the information listed is accurate. If you find debts listed that don't belong to you, contact that creditor and ask for proof that the debt is yours. The creditor must, by law, provide such proof within 30 days. If proof is not furnished within 30 days, the debt listed must be removed from your credit report. If you're certain that the debt is not yours, insert a note into your credit report, stating the debt does not belong to you and that you've contacted the creditor.

If you find debts listed that are old and do belong to you, pay them off if possible. If the debt is large and you can't pay it off, contact the creditor to make arrangements for a monthly payment and insert a statement to that effect in your credit report.

In the meantime, while clearing up any discrepancies and bad marks on your credit, decide what vehicle you intend to buy. Checking the Kelly Blue Book(R) value on a specific vehicle, as well as such extras as air conditioning, power windows, 2-door versus 4-door models, can save you money on your purchase, thereby affecting the total cost and thus, your auto financing rates.

Once you've determined the vehicle which you intend to purchase, shop around with the auto insurance brokers for the best price on insuring the vehicle. While this doesn't directly affect your APR, it does affect the bottom line of your cost.

Going through your own bank or credit union always gets you better auto financing rates than you'll get through dealer financing. Even if your credit score is poor, a dealer can almost always secure financing, but you'll pay a lot more.

No matter what your credit score, making as large a down payment as you can manage helps in two ways: financing a smaller amount reduces your monthly payment and the large down payment demonstrates that you have a vested interest in your purchase. Let's say you're buying a car with a Kelly Blue Book(R) value of $4000. If you put $1500 down, the remaining balance to finance is $2500. Your cash investment may reduce your auto financing rate, as the finance company carries less risk of you defaulting, you pay less overall in financing and you have a smaller monthly payment. A substantial down payment also makes it easier to secure financing.

Once you've obtained financing, make your payments on time and add a little extra to each payment. Even $10 or $20 a month extra can make a significant difference in paying down the principle, thus effectively reducing the total amount of interest paid over the term of the loan.

Using these techniques will help you get the best auto financing rates and bring the cost of your vehicle down to as reasonable a sum as possible.