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    How To Negotiate Better Interest Rates On Your Car Loan

    Better Interest Rates On Your Car Loan

    Buying a new car is probably one of the second-biggest financial decisions in our lives. Among the best ways to get your hands on a new car affordably is by applying for an auto loan. Unfortunately, most borrowers aren’t aware of the fact that quite a few things in the loan contract can be negotiated for a better rate. 

    Here are  some effective ways to negotiate the terms for a better deal before you sign the contract.

    First Of All, Negotiate The Vehicle Price

    Before you even begin negotiating the terms of the loan, start by inquiring about the sale price of the car. Look for the current market rates on price comparison websites like Kelley Blue Book, Edmunds, and more. Generally, dealerships add a mark-up on the MSRP of the vehicle to make a profit. If you’re aware of the prevailing rates, you’ll have an upper hand to negotiate the price.

    When you succeed in lowering the purchase price, it means that you’ll need to finance a smaller amount by extension. The smaller the amount you borrow, the lower the interest amount you’ll pay over the life of the loan. However, make sure to do your research and don’t just quote a random figure. 

    Most dealerships are inclined to make a sale and if you’ve already received a better rate elsewhere, make sure to tell it to the dealer alongside substantial proof. The dealer will lower the price as much as possible to get your business.

    Shop Around And Compare Rates

    Shop around for quotes from different lenders, banks, and credit unions. Usually, dealerships aren’t legally responsible to give you the lowest rates right away, but if they realize that you’ve done the research and have multiple offers with you, they’ll have the necessary incentive to offer you competitive rates.

    A quick Google search will provide you enough details to start the negotiation process. Alternatively, you can also use dedicated comparison sites to compare rates. Make it a point to ask for the Annual Percentage Rate (APR) whenever you ask for quotes. It is even better if you can obtain pre-approval for an auto loan. This will give you an extra advantage to persuade the dealership to offer a better rate.

    Make A Larger Down Payment

    By making a substantial down payment on the loan, you can get the best rates and save a lot of interest over the term of the loan. In most cases, lenders ask for a minimum of 10% of the car’s cost as down payment. Still, there’s no limit to the amount. If possible, you can pay as much as 50% or more of the car’s selling price upfront. 

    The higher your down payment is, the lower the total amount you’ll need to finance. A lower amount equals lower monthly repayments. Moreover, putting in a bigger down payment than what is asked will also help reduce the rate of interest. Best of all, it will also minimize the chances of you going upside-down on the car loan.

    Get A Cosigner

    One of the main reasons for extraordinarily inflated rates on loans is a poor credit rating. If you’ve a less than average FICO score, try applying for the loan alongside a cosigner. A cosigner can be your friend, spouse, a family member, or anyone else with a sound credit rating. They’ll act as a guarantor and lenders will be willing to provide you a competitive rate because of the added security.

    Although the cosigner has no authority over the loan or the title of the car, they’ll be responsible to make payments on your behalf in case you default. They’ll also face a negative impact on their credit score. Accordingly, make sure that you choose a cosigner who you can trust and who trusts you. 

    Never Settle For High Interest Rates

    The interest rates offered primarily depend on your credit score. Thus, it is important that you know the average rates based on your FICO score. You can check your credit rating from bureaus like Experian.

    The higher your credit score is, the lower the interest rates you get. On average, the rate offered to borrowers with excellent scores (690 -850) is between 3.60% to 4.95%. For borrowers with scores between 500 -689, the rates may fluctuate between 7.02% to 15.24% or even more.


    In order to access better rates, it is important to know the market rates and trends. Don’t just walk into a dealership to check rates. Instead, do your research and collect as many quotes as you can. Negotiate on the factors like sale price and try adding a larger down payment to secure the most competitive rates available.