Annual Percentage Rate (APR) and interest rate
Getting a lower interest rate and APR means you will pay less to borrow money and the amount you’ll pay over the life of your loan will be lower. Lenders base your interest rate and APR on a number of different factors, but to get the lowest APR and interest rate, compare quotes from multiple lenders before you go into the dealership.
For example, getting preapproved by a bank or credit union allows you to show other lenders or your potential dealership the rates you’ve been offered, with the goal of getting competitive offers.
Length of the loan
A shorter loan term, where you make a fewer number of monthly payments, will reduce your loan cost overall. While a longer loan can reduce your monthly payment, you’ll end up paying more interest over the life of your loan.
A longer loan also puts you at risk of having negative equity for a longer period of time, meaning you owe more than the vehicle is worth. For example, if you try to sell or trade-in your car before it’s paid off, you’d still owe money on your loan. The risk of negative equity also depends, in part, on the resale value of used vehicles, which can fluctuate.
Prepayment penalty
If you have a prepayment penalty in your loan terms, you’ll be charged a fee or penalty if you were to pay off the loan early. Ask your lender or dealer if your loan has a prepayment penalty, and if so, you can negotiate to have it removed.
Optional add-on products
Add-on products and services are optional. You’re not required to purchase them, but if you choose to, the price is negotiable.
This may include physical features – such as alarm systems, window tinting, and tire or wheel protection – but it can also include:
- Extended warranties or service contracts
- GAP insurance
- Credit insurance or debt cancellation or suspension products
Keep in mind that if you agree to include add-on features or credit products in your auto loan, it’ll increase both your monthly payments and the total amount you’ll need to borrow and pay back.
Vehicle trade-in value
If you’re looking at trading in your current vehicle, a good first step is to get an approximate value for your trade-in by using online resources, including Consumer Reports, Edmunds, Kelley Blue Book and NADA Guides. Again, the market for used vehicle, which can fluctuate, can also impact your trade-in value. Compare the value you’d get at different dealers vs. selling it to another person directly and putting that money towards a down payment on a new car.
If you have an outstanding balance on your vehicle, understand how much more you’ll need to pay in order for your old loan be paid off. A dealer may offer to “roll in” the balance of your old loan, but beware that this adds costs to your new loan. Learn what you need to do if you owe more on an auto loan than what your car is worth.
Additional fees associated with purchasing a vehicle or your loan
This may include fees charged by the dealer, such as preparation fees, origination fees, document fees, delivery charges, and market adjustments or fees that increase the price over MSRP.
What you can’t negotiate
You can’t negotiate taxes, title, or registration fees set by your local and state government.
