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Step 1
Determine how much you can afford. Before you go car loan shopping, you will need to determine how much money you can afford to put towards a car loan each month. Once you know the approximate monthly payment you are willing to spend, you can narrow down the type of car you can afford, as well as which lender offers you may want to pursue.
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Step 2
Calculate the total cost of the loan you want. Once you know how much you want to spend, you will want to calculate how much total car you will want to seek the loan out for. To do this, look online for the current average car loan interest rates. For example if you are willing to pay $200 a month for a car loan and want to pay the loan off in five years, you would take $200, multiply it by 60 months to get $12,000. Now multiply that number by the average interest rate, and subtract that amount from the $12,000. This will get you the amount of money you can afford for a car loan.
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Step 3
Read the fine print. When searching for a car, most dealerships will tell you that they can fit the car of your dreams into your budget. However, most dealerships do this by extending the length of the loan. Not only do you end up with more car than you can afford, you also end up paying a lot more interest over the longer loan period.
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Step 4
Check your credit score. Regardless of the lender, they will check your credit score. Knowing your own credit score helps you realize what interest rates you can expect to be offered as you look around. This way if you apply for one loan and it seems like the interest rate is too high compared to what your credit score is, then you will know to keep shopping for another interest rate. On the other hand, if you are offered a lower interest rate than what you expected, you will be able to tell it is a good deal.
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Step 5
Go to your own bank first. Many times the bank that you already have accounts with will offer you a lower rate. This is especially true if you have kept your bank record clean of defaults or overdrafts. Since your bank already has a history to know whether you are a risk for default, they may be willing to offer you a lower rate than other financing sources.
