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Car Buying Guide: How to Get the Best Deal

Aside from buying a home and paying for college, cars are usually the most expensive things that people buy in their lives. Although buying a new car is usually an exciting time, driving off the lot knowing you didn’t get the best deal on your financing can be a huge disappointment.

If you are in the market for a new car, you may be able to get a better deal on your financing by going through a credit union instead of the financing offered by dealers. The following car buying guide is an overview of why you would want to get pre-approved for a car loan, the process for applying, and some common terms you will need to know.

Why Get Pre-Approved for a Car Loan?

There are several ways that getting pre-approved for a car loan from a credit union can help you.

  • Set a realistic budget: Knowing how much you can spend on a vehicle keeps you from buying more car than you can afford. This can also save you time by only looking at vehicles that are in your price range.
  • Get a great interest rate: Some dealers mark up the interest rates on the loans they offer by 1-2 points to earn more money. This markup could cause you to pay hundreds more in interest over the life of the loan.
  • Help you negotiate: Pre-approval can help you negotiate from a position of strength. If you are pre-approved for a car loan, the dealer will consider you a cash buyer. This allows you to avoid the sales tactic of negotiating the monthly payment. You can negotiate the sales price instead.

How to Apply for a Car Loan

The process for applying for a car loan pre-approval is simple. Many lenders give you the option of applying in person, online, or by phone. Same-day approvals may also be possible.

Step 1: Gather Your Information

To ensure a smooth application process, it’s best to gather all required information before you apply. A few common things you will need include:

  • Social security number
  • Driver’s license number
  • Income and employment information
  • Amount you would like to borrow
  • Title or loan information for trade-ins
  • How long you would like to finance the car

Step 2: Apply

The next step is to apply for a car loan. Most lenders give you several options for applying for your convenience, and you will receive a notification letting you know if you have been pre-approved.

Step 3: Go Car Shopping

You can now go car shopping to find the best car for your needs. You can use your pre-approved loan status to negotiate a great deal.

Step 4: Pick Up Your Check

When you are ready to finalize the purchase, you can drop by a local branch and pick up a check for the purchase amount of the vehicle. You can then take the check to the car dealer to complete the purchase.

Step 5: Send the Title to Your Lender

Your lender will hold the title to your car until the loan is repaid.

How to Save Money on Interest

In addition to going with a credit union for a great interest rate on your car loan, there are several other ways you can save money on interest. When combined, the savings can be substantial.

Maintaining a good credit score is the first thing you can do. Borrowers with high credit scores are usually awarded better interest rates.

If you aren’t sure of your credit score, you can order copies of your credit reports from each of the three credit reporting bureaus (Experian, Equifax, TransUnion). When you receive your credit reports, go over each one and make sure all of the information is correct. If you see an error, you can dispute it with the reporting bureau and possibly have it removed.

You will also want to make as much of a down payment as possible. The more you pay upfront for your new car, the less you will have to finance, which helps you save money on interest.

Finally, choose a loan with the shortest repayment term that you possibly can. The longer your loan, the more money you will pay in interest.

Car Loan Common Terms

The following are several common terms you may encounter when financing a car. Understanding these terms can be helpful when negotiating.


Interest is the money you pay your lender for the money you borrow. When you make your monthly payments, part of the payment goes to repay the borrowed money. The rest is interest payment.


Principal is the money that you borrow to pay for your car.

Annual Percentage Rate

The annual percentage rate (APR) represents the money you will pay your lender each year in both interest and fees. The APR is usually expressed as a percentage. The lower the APR, the less you will have to pay.

Down Payment

A down payment is a payment you make upfront that covers a small percentage of the total cost of your car. This payment is usually made when finalizing the vehicle purchase.

Loan Term

This refers to how long it will take you to repay your loan. The loan term is usually expressed in months.

Monthly Payment

The monthly payment refers to the amount that you will pay each month until your loan is repaid. The monthly payment usually consists of the principal, interest, and fees.

Total Cost

The total cost refers to the total loan amount, interest, and fees.

Car Buying Guide: Shopping Smart

Getting a great deal on a car isn’t impossible. By getting a loan from a credit union instead of going through a dealer, you can increase your negotiating power and save money on interest. The money you save can be used to buy gas, car insurance, or something else.

The following article provides more information on how interest is calculated on car loans. This can help you select the best loan terms for your needs.

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