3 steps to getting the best deal on used car loan

Understand how your credit rating will affect your application process:

     Before applying for a loan, you should check your credit rating from one of the credit bureaus. For a small fee you will be able to see the condition of your credit and what interest rates to expect. It is generally a good idea to monitor your credit rating anyway, so that you would be able to see if anyone is using your social security number to open up accounts or loans. Monitoring your credit and stopping fraudulent activity in time can save your credit score from total annihilation.

     People with high credit scores get lower interest rates, because creditors consider them to be lower risk, thus more secure investment of their money. People with low credit scores usually get highest interest rates. Generally, interest rate on used car loans is higher than new car loans.

     If you have bad credit rating, you will most likely have to have someone co-sign for the loan with you, or you will have to apply a collateral to your loan in case you default on your payments. Some lenders allow you to put down large amount of down payment on a car, as a security that you will pay out your loan in full. They will be lien holder in any case.

     If you have excellent credit rating, you shouldn't worry about having a co-signer, provided you have enough income. The lending institution will still hold the lien on the title until the loan is paid off.

Compare the rates:

     Apply to different lenders online and see what their interest rates are to make an educated comparisons of the total cost of the loan. Do not rely on dealerships to provide you with credit solution, there is no guarantee you will get a good rate (most likely you won't, because they understand that you have no basis for argument if you haven't applied to any lenders beforehand). Having loan secured also relieves the pressure at the dealership, because you have a check on your hand already for the amount you're willing to spend. Read all fine print and understand:

• APR and APY

• Compounding frequency

• Any processing fees and closing costs

• Fixed or variable interest rate

• Whether or not the interest rate will change if you miss a payment

• Pre-payment policy

• Late payment penalties

• If there's a balloon payment (a large last payment)

• Whether or not lender is adding any loan insurance to your loan

Close the deal:

     Pick the best deal you can find and get it! After a few days you should get the check in the mail, with which you can go directly to the dealership and begin the negotiation process. It is preferred you check out the car you want to buy before applying for loan, because some lenders require a specific VIN number to issue a loan. You can avoid negotiating with the salesman about the price, then just show up with a loan that's less than their asking price, and inform them this is what you're willing to pay and see if they take it. If not, you can always combine payments, but having a check for lower amount is going to help you in negotiations significantly.