The 2 simple steps I took to save over $500 on my car loan

• I recently bought a used car and saved over $500 on interest by shopping around for a loan.
• I started by checking my credit score to ensure I qualified for the best rates.
• Then, I shopped around for the lowest rate and asked the dealer if they could beat it.

Shopping for a car is stressful enough, so adding financing into the mix can make the whole process overwhelming. It’s tempting to go with the first loan you’re approved for, but I knew I wanted to shop around and make sure I could get the best rate possible.

In the end, applying for preapprovals with a variety of different lenders and then using those as leverage when negotiating with a car dealer saved me $549 on interest. 

I checked my credit score first

The first step I take before submitting any application for credit, whether a loan or a credit card, is to check my credit score. This gives me an idea of what I can likely qualify for before I go filling out dozens of applications. Checking your credit score won’t hurt your credit, but it can cost money. 

Luckily, I have access to my free credit score through both American Express and Chase. All cardholders get a free credit score through these two issuers. My VantageScore was listed as 738 through the American Express MyCredit Guide and 710 through Chase Credit Journey.

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It’s more common for lenders to pull your FICO score, though, so I wanted to check that as well. I’m signed up for an Experian CreditWorks Basic membership, which is free and includes your credit score and credit monitoring. My FICO score, pulled through Experian, was 736.

While I can see things like my credit usage and recent inquiries through Experian, I wanted to make sure that my full credit history was accurate before applying for loans. If my credit report contained any errors that could drag down my score, it would be important to dispute and have them removed before applying for credit.

I’d recently pulled my credit report through AnnualCreditReport.com, which you can do once each year for free. Everything looked good, so I was ready to start applying for auto loans.

I shopped around for preapproval rates before approaching dealers

I knew I wanted to shop around for preapprovals before speaking with car dealers. This gave me an idea of what rates I qualify for, which I could then use as leverage when negotiating with a car dealer. I wasn’t set on borrowing from any specific lender and wasn’t opposed to going through a dealership for financing either — I simply wanted to go with the option that gave me the lowest rate.

Knowing that multiple loan applications within a short period of time would be lumped together as one credit inquiry, thus minimizing the damage to my credit score, I applied for preapprovals through a wide variety of lenders. Some lenders did a hard pull on my credit report (which can affect your score), while others simply did a soft pull (which doesn’t impact your score). 

I applied through my credit union, several other credit unions in my area, a couple of traditional banks, and an online lender. The only lender that denied me was LightStream, an online lender. The credit unions approved me for rates ranging from 3.2% to 4.25% pending the vehicle model year. My own credit union, First Tech Federal Credit Union, offered the lowest rate, so I printed out my loan approval offer to take with me while car shopping.

I asked the dealer if they could beat my best rate

My plan was to find a car I wanted to buy first and then ask the dealer if they could beat the rate I’d been offered with their own financing. Most of the dealers I visited offer financing in conjunction with local credit unions, including the ones I’d applied to.

When I found the car I wanted, I negotiated the price first. After that, I made it clear that I wanted to purchase the car and asked them if their financing department could beat the lowest rate I’d been offered, showing them a copy of the loan approval from my credit union.

The dealer went through all the lenders they partner with to find one that would be able to offer me the lowest rate. They ended up getting me a significantly better deal through Oregon Community Credit Union, an institution I hadn’t applied with. Through dealer financing, I qualified for a 2.48% APR as long as I signed up to make automatic payments. I had to be a member of the credit union to take out a loan from them, but all I had to do to become a member was provide proof of address.

Shopping around for the lowest rate saved me over $500

In the end, I put a portion of the car’s price down in cash and took out a loan of $11,566 at a rate of 2.48% with a loan term of 60 months (or five years). If I don’t pay it off early, I’ll end up spending $744 in interest, which isn’t bad, in my opinion.

If I’d gone with the lowest rate my credit union offered (3.2%) instead of trying to negotiate with the dealer, I would end up paying $965 in interest. It’s not a huge difference, but it’s still over $200 I saved by simply asking the dealer if they could beat my best rate. If I’d neglected to shop around and went with the very first preapproval I got, which came with a 4.25% APR, I would’ve paid $1,293 in interest.

When all was said and done, I saved $549 on interest by shopping around and negotiating with the dealership.

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