How Smart Shoppers Shop for Auto Loans

Posted on: 7 August 2017

Shopping for an auto loan isn't an easy task; a small mistake can leave you with an expensive loan, and you won't be able to do anything about it once you sign on the dotted line. The good news is that there are smart shoppers who know the right way to shop for auto loans. Here are three tips on how they do it:

They Don't Shop for Loans from the Car Dealer

Car dealers also offer auto loans, and they advertise themselves as offering one-stop services. While shopping for a car and its loan at once may be convenient, smart shoppers know it isn't economically wise. One reason for this is that the car dealer's primary service is to sell cars; selling loans is a secondary service. Anybody who engages in more than one type of business will tell you that they always prioritizes the primary business, which brings them more money. Since selling loans is only the dealer's secondary business, they aren't likely to invest in it much, which also means their rates aren't likely to be competitive.

They Make All Their Loan Inquiries Within Two Weeks

Smart auto loan shoppers understand the need for making multiple inquiries before signing up for a loan. In fact, every time you are shopping for anything, and not just an auto loan, it pays to compare rates from different providers so that you can pick the best one.

Now there are good news and bad news about this fact. The bad news is that every time you make a loan inquiry, it affects your credit score, and the effect is always negative. Making numerous inquiries, therefore, can seriously dent your credit score. The good news is that the negative effect only occurs when you spread out the inquiries. If you make all the inquiries within a two-week period, they will all be treated as a single inquiry, and the effect on your credit score will be minimal.

They Scrutinize the Terms and Conditions

Lastly, smart shoppers know that the devil is in the details. They know that there is no use taking an auto loan with "great" rates if the rates are variable and can swing up to unreasonable amounts. They also understand the effect prepayment penalties can have on the overall cost of the loan. In short, smart shoppers will not sign up for an auto loan before confirming that the terms and conditions are all reasonable.

To learn more, talk to companies like US Community Credit Union.