Car Financing Tips

Financing a car can be tricky, especially considering the large number of lenders and varying interest rates. You need to know your credit score and credit history before you step into the dealership. Your Equifax credit report will tell you what you need to know about your credit history, and give you an idea of what APR’s you may qualify for. Alternately, you can view your free credit report (with option to purchase your FICO score) at

What's Your Credit Score?

With this information in hand, you should also shop interest rates at your local bank and credit union to see how low of a rate you qualify for (in my experience, customers have obtained the lowest rates from their local credit union). Use this information to compare the rates available at the dealership, or special rates available through the manufacturer. You will save yourself time, frustrations, and dealership headaches if you simply enter the dealership with a check already in-hand from your bank or credit union. This is not always possible, however, if you are looking to take advantage of a special APR offered through the manufacturer. The dealership would prefer if you finance through them, as they make money on the financing (and try to charge you a higher rate than what you actually qualify for). This is what it is important to know your credit ahead of time and “stick to your guns” at the dealership so you don’t get bullied around.

The major auto manufacturers have varied criteria for obtaining approval of special APR’s, so make sure you get approval ahead of time at the dealership. I recommend going into the dealership seperately to apply for credit, rather than online (some dealer websites are not secure, and others have problems accessing the data submitted). If you are a good distance away from the dealership you plan to buy your car at, then submitting your credit app online will have to suffice (call the dealer immediately after you submit your information so they can find your application and start the approval process). Do not assume you qualify for a special APR. If you are on the borderline between being approved or rejected for a special APR, dealers can request tier bumps from the manufacturer, and more often than not get you approved for the special rate.

Fees in the Finance Office:
Do not fall victim to the finance manager trying to charge you rate fees or buy downs. While in some cases the dealer may legitimately have to pay for a “rate buydown,” often times the cost is not worth the benefit. Be prepared to do the math and see what a rate buydown does to your payment. You should have already calculated your payment before you walk into the dealership, so if whatever the finance manager is offering you lowers your payment, you should at least give it a look.

Misleading 0% for 60 or 72 months advertised:
Looking through the newspaper (or even dealer websites) you will often see 0% for 60 or 72 months advertised. These rates are only true if they are offered through the manufacturer; otherwise, this fake rate is commonly known as a rate “buy down.” A buy down rate is similar to points on a mortgage. The dealer will charge you to buy the rate down to 0%, costing you hundreds to thousands of unexpensed dollars. To be safe, stick to the special rate advertised through the manufacturer, not the dealer.

Deciding whether to take the special APR or cash rebate:
Edmunds has made it extremely easy to determine whether to take the special APR from the manufacturer or the cash rebate. Factors that will affect your decision include possible trade-in (money owed on trade-in), money down, market finance rate (i.e. standard rate you can get through your local bank or credit union), and loan term. Visit Edmund’s Auto Loan Calculator, and click on “Low APR vs. Cash Back” on the top tab.

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