Can I negotiate a car loan interest rate with the dealer?
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Yes, just like the price of the vehicle, the interest rate is negotiable. Dealers might not offer you the lowest rate that you qualify for. To get the best interest rate, shop around with multiple lenders and negotiate.
There are a number of ways you can get or finance an auto loan, including going directly to a bank, credit union, or finance company, or going through your dealer.
If you choose to arrange your financing through your dealer, they will collect your information and send that information to one or more lenders, who will propose an interest rate to the dealer. This is known as the “buy rate.” The dealer will choose the offer to present to you, but they may have an incentive to charge you more than the proposed buy rate. When the dealer provides you with a loan at a rate above the “buy rate”, he sells the loan to the creditor for more than the face amount you borrowed. That is, the dealer can sell your loan at a premium. This means that the interest rate you receive through a dealership is generally higher, but you can negotiate this rate, along with other loan terms.
How to get the lowest interest rate for your car loan
Auto lenders will generally consider a number of factors when they’re determining the interest rate and loan terms to offer you, including credit score and history, income, amount of loan, down payment, and loan terms. However, they are not generally required to offer you the best rates available.
Before you begin shopping for a car or visit an auto dealer, it’s helpful to:
Check your credit
Review your credit reports before you shop for a car or apply for a loan. You can review your credit reports for free from nationwide credit reporting companies including, Experian, TransUnion, and Equifax. If you find any errors or inaccuracies dispute this information to see if it can be removed.
Get prequalified or preapproved
Second, get prequalified or preapproved for an auto loan from a bank, credit union, or other lender. Again, shopping around and comparing offers can help ensure you’re getting the best deal.
Getting quotes from multiple lenders generally won’t impact your credit score. If you have multiple lenders checking your credit, it’s a good idea to keep your shopping within 14 to 45 days. This way, these credit checks count as only one credit inquiry.
You might not get the best deal by getting financing directly through a dealer. If you go through a dealer, they will reach out to several lenders on your behalf and offer you one of those loan offers. Dealers profit when they offer higher interest rates than they receive from the lender. You can save a lot of money by comparing loan offers and negotiating for the best interest rate available to you. Negotiating can be as simple as asking the dealer if you qualify for a loan with better terms.
Negotiating your interest rate can help save you hundreds or thousands of dollars over the life of the loan. Negotiating can be as simple as asking the dealer if those are the best loan terms they can offer you or by pointing out lower rates available at a competing lender.
Types of auto loans
Most auto loans are fixed rate, which means the interest rate on your loan will not change over the life of your loan. You can see your payment for each month and the total you will pay over the life of a loan based on that fixed interest rate. You might prefer fixed rates if you are looking for a consistent monthly payment.
Variable-rate financing is where the interest rate on your loan can go up or down, based on the prime rate or other “index” rate.” The interest rate on the loan changes as the index rate changes, meaning that it could go up or down.
Variable interest automobile loans are uncommon, but you may be offered a variable-rate loan if you need a longer loan term or need to keep your initial payments low, as the interest rate offered is usually less than a fixed-rate loan. However, be aware that variable introductory rates can end up with a much higher interest rate, than if you go with a fixed-rate loan.
Know what is negotiable
Did you know that you can negotiate the terms of your auto loan? Negotiating can save you hundreds or even thousands of dollars over the life of your loan.