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How to Convince Your Dealership to Give You Its Lowest Auto Loan Rate
Getting the lowest auto loan rate possible for your next vehicle is one of the most important parts of the car-shopping process. However, the terms of a car loan can be overlooked when you are searching for the perfect car at the perfect price. And if you aren’t informed, it can cost you big, especially when you choose dealer financing.

According to a study from the Center for Responsible Lending, some dealerships mark up the interest rate the borrowers’ credit qualifies them for. Dealers view this markup as compensation for the time they spend making the deal and processing the car loan, but for buyers, it is essentially a hidden cost. The average rate markup on dealer financing was 2.47%, and cost the average consumer $714.

When shopping for auto loan rates, being informed and knowing what rates you qualify for will help you save money — especially when you are financing your auto loan through a dealership. Don’t fear, there are ways to get a lower rate on an auto loan financed through a dealership!

How Dealer-Financed Auto Loan Rates Are Determined

According to, dealerships use multiple factors to determine interest rates for auto loans:

The lender the car dealership uses. Depending on which bank, credit union or financing division of the automaker is partnered with, the car loan’s rate can vary.

The type of car and the vehicle’s model year. Brand new cars generally offer the lowest rates. Auto loans for used cars generally have higher interest rates. Also, the older a car is, the higher the interest rates.

The loan’s term. While automakers have recently extended zero-percent financing to longer-term loans for promotions, generally speaking, the longer a car loan, the higher the interest rate.

The borrower’s credit score. As with any loan, customers with impeccable credit are given the lowest auto loan rates. However, according to the Consumer Federation of America, only 15 percent of all car buyers are able to get this rate from dealer financing.

How to Get a Lower Rate on an Auto Loan at a Car Dealership

In order to guarantee that your dealer offers you the lowest car loan rate, you need to know how to get a lower rate on an auto loan. Knowing how to negotiate with your car dealership is the key to get the best rate for your next car purchase.

Research Alternate Financing Options Available

Before you go to the dealership for your financing, shop around and apply for auto loans at local banks or credit unions. Doing your own homework to see what car loan rates are available for you will let you know how competitive your car dealership’s loan interest rates are. After you get a loan offer from your dealership, you can compare the rates and counter the car dealership’s loan offer with the lower rates you have been pre-approved for from third party banks and credit unions.

Ask For A Lower Interest Rate

If dealership financing is your only option, then negotiating might be your only way to get a lower rate on an auto loan. If you feel the interest rate is too high, you can get offered a lower interest rate simply by asking.

Increase Your Down Payment

The larger the car down payment you can afford to put toward your purchase, the lower your car loan rate will be. The less money the lender risks, the more comfortable they will be loaning it out. This translates into the lender rewarding your responsibility with a lower interest rate. The ideal car down payment is at least 20 percent of the projected loan amount.

Keep Your Loan’s Term Short

Signing up for the shortest auto term possible reduces the interest rate of a car loan because it reduces risk for the lender. Allison Vail from illustrates this point perfectly. She compares a three-year and six-year auto loan for $22,000 at 5%. The three-year loan will cost a borrower $23,737 with finance charges compared to $25,510 for a six-year loan. The three-year difference between the loans will cost a borrower an extra $1, 737.

Set Up Automatic Payments

Depending on the loan company your obtain your financing from, you might be able to reduce the car loan’s rate with automatic car payments. By setting up an automatic withdrawal from your checking or savings account, some lenders can reduce the interest rate to help you save a few hundred dollars.

Ask About Promotions

During your negotiations, ask the car dealership about any financing incentives that are available. Depending on the type of cars eligible, you might be able to take advantage of zero or low car loan interest rates.

Don’t Take the Dealership’s First Offer

If you feel the interest rate is too high for your auto loan, don’t sound too eager to settle for the first offer. Lenders who sense borrowers are eager to get a loan will be less likely to negotiate an auto loan rate. If you are not prepared to walk away from the offer or at least tell the car dealership you have to think about it, then the car dealership will be less likely to lower the interest rate.

Negotiating to get the lowest interest rates can be accomplished, but understanding how to get a lower rate on an auto loan takes education, staying firm and not settling for the first offer.

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