Financing the Fantasy

If you’re in the market for a car, the L.A. Auto Show is like a dream, with all the brands in one convenient location. It’s a great way to do research on the wheels that might be right for you — minus the pressure from the car salesman.

But once you’ve picked out your favorite vehicle at the show, you’ll have to make sure you can afford it. Before you visit a dealer, it’s a good idea to do some research on getting a good interest rate on your car loan. We spoke to a range of experts and got their best advice on securing a great rate.

While the low interest rates in advertisements can be enticing, few buyers actually qualify for those rates. Want to know if you do? Investigate your credit score.

“Car shoppers should know their credit score before they set foot in a dealership or submit an online request,� said Karl Brauer, senior analyst at Kelley Blue Book. “This ensures they have a realistic sense of the interest rate they can get before the dealer offers financing.�

Buyers who learn that their credit score isn’t as high as they’d hoped would be wise to spend some time tuning up their credit before they apply for an auto loan. “Sometimes you can improve your credit score simply by getting another month of on-time payments on your account if you’ve recently been late,� said AutoTrader.com editor Brian Moody. “It may be better to use the money you intended for a down payment on a car to pay down existing debt instead.�

Next, shop around to get preapproved for a loan, starting with lenders you currently do business with, said Eric Lyman, senior analyst at TrueCar. “Getting financing is as much of a negotiation as negotiating the price of the car itself,� he said. “You’ll want to explore your options.�

Phil Reed, Edmunds.com senior consumer advice editor, suggested shopping around for a car loan online as a way to be more time-efficient: “Most banks and credit unions offer online applications, and lenders that specialize in doing business online can offer an approval with a guaranteed amount in as little as 15 minutes.�

Car buyers with blemishes on their credit may get better interest rates from lenders they currently have accounts with — even if those accounts have a black mark or two. “Sometimes higher-risk borrowers have better luck with the banks where they already hold accounts and are a known quantity,� said Joe Wiesenfelder, executive editor at Cars.com. “Smaller organizations, including local credit unions, are more likely to take a more personal approach and allow for hardships that might have damaged the borrower’s credit rating, such as past illness.�

With a preapproved loan in hand, car shoppers enter a dealership feeling more confident, which allows them to focus their negotiations on the total price of the car rather than a monthly payment. If the dealer can beat the preapproved interest rate — and sometimes he can — then the customer gets a better deal, though buyers need to be careful that the terms of the loan are the same. On that note, one last bit of advice from Brauer: “Be sure to thoroughly read all the financing paperwork since there are many factors that could affect the overall cost of the loan.�

—Tara Baukus Mello, Brand Publishing Writer