How To Shop For An Auto Loan

Buying a car is exciting — but choosing the right auto loan can feel overwhelming. The right loan saves money, fits your budget, and ensures you drive away with confidence. 

When buying a car, you usually don't pick the first car you see on the lot. You shouldn’t pick the first loan online or at the dealership for many of the same reasons. You'll get the best rates and terms if you know how to shop around, compare loans, and select from various auto loans. 

In this guide, you'll learn how to choose the best auto loan, get preapproved, compare auto loan offers, understand loan terms and fees, and finalize your auto loan and purchase.

Finding Your Perfect Auto Loan

You can take proactive steps in your auto loan shopping journey to save money and make the best-informed decision.

Credit unions, such as ProFed Credit Union, stand out as some of the best auto lenders for the following reasons:

  • Lower rates. Credit unions offer more favorable auto loan interest rates and flexible repayment terms.
  • Personalized service. Members own and run credit unions, and most are vested in ensuring that all other members feel satisfied with the services offered. 
  • Lower fees. It is common for credit unions to have lower fees on their loans because they have a not-for-profit business structure.
  • Lower minimum loan amount. Credit unions can offer a lower starting loan amount to give you the support you need to get you across the purchase line.

Determine Your Auto Loan Budget

First, set a realistic budget. Remember, your budget should cover both the down payment and monthly loan payments, as well as car insurance and future repairs.

Your financial situation, including your income, monthly budget, credit score, and credit history, will play an important role.

Click or tap here to find out how much car you can afford using our payment calculator. 

Get Preapproved for an Auto Loan

Preapproval is like having a golden ticket when you walk into the car dealer. It's not a closed deal, but it does provide a sense of security. You can shop confidently, knowing that a loan is ready to be finalized when you choose a car within the approved price range.

You'll need to approach your lender with all the necessary documents, including:

  • Proof of income
  • Employment history
  • Personal ID

You will fill out an application and complete the approval process. Then, you will be free to start your car-buying experience.

Preapproval gives you confidence in your budget and negotiating power, and you can say 'no' to all dealership financing options with diplomatic firmness.

Different Types of Auto Loans

When exploring your options, car loans can be grouped into several different categories, including:

New car loans: Financing options specifically designed for purchasing brand-new vehicles.

  • Typically cost more but have lower interest rates
  • Easier to finance

Used car loans: Loans tailored for purchasing pre-owned vehicles, often with different terms and interest rates than new car loans.

  • Typically have higher interest rates because these cars are harder to value

Refinance loans: Options for refinancing existing auto loans to potentially secure better terms or lower interest rates.

  • Terms vary considerably but typically have a higher APR than new car loans

Lease buyout loans: Financing for purchasing a leased vehicle at the end of the lease term.

  • Depends on the age and condition of the vehicle

Comparing Auto Loan Offers

When comparing loan offers, it's important to consider more than just the stated interest rate. You'll also want to look closely at loan fees, including origination fees, prepayment penalties, and late payment fees.

Read and Understand the Auto Loan Agreement

As soon as you choose a loan (or finalists), it's crucial to read through the loan agreement. Understanding the terms, fees, and conditions is key. Don't hesitate to ask your lender about any unclear points. After all, this agreement will be legally and financially binding once you sign. You have the right to ask for revisions if there are terms you are uncomfortable with or numbers you want to change.

A few key terms to know include:

  • APR - Annual Percentage Rate - is the added percentage fee for borrowing money.

  • Loan Term - The total time you have to repay the loan.

  • Repayment Schedule - How much you will pay and at what pace. Usually, your monthly payment and how long it will take to repay at that rate.

Finalize the Auto Loan and Purchase

Once you have chosen a favorable loan offer and reviewed all the details.

Start by completing your application and getting your loan preapproval. Ensure you get a printed preapproval letter and that your digital account with the lender reflects your pre-approved loan status.

From there, you can head to the car dealership and select your car. Submit your preapproval letter and connect the dealership with your preferred lender. They will finalize the process, and you will sign the papers, accept the finalized loan terms, and take ownership of the car.

Remember to review all documents one last time before completing the transaction.

ProFed Credit Union will help you find an auto loan that fits your budget and personal plans. Schedule an appointment with ProFed today to learn more.