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By aliciamadamczyk
December 14, 2015
Francesca Cambi—Getty Images

To secure the best terms, apply to multiple lenders. Contact your bank, as well as other local banks or credit unions to find out what kind of financing they can offer. You probably don’t need to contact more than three sources, as the offers won’t vary too widely.

Fill out all auto loan applications within a tight timeframe, so credit bureaus realize you’re buying a car and your credit score isn’t mistakenly lowered.

Go over each financing offer carefully, focusing especially on the interest rate and car loan term. When securing a loan for a new car purchase, aim for a four-year loan or less. “You don’t want to go beyond a five-year loan,” says Brian Moody, site editor at AutoTrader.com. “If you go beyond that, you’re likely looking to buy a car above your means that you can’t really afford.”

If you need a loan for a used car purchase, you’ll want the length of the loan to be even shorter since the interest rate will be higher for a used car, according to Philip Reed, Senior Consumer Advice Editor at Edmunds.com.

You’ll pay more in interest the longer you pay down the loan, so you should try to pay it off early, take out a shorter loan, and/or put a larger down payment on the vehicle. Taking out an auto loan with extraordinarily long terms increases the chances that one day you’ll owe more than the car is worth, thanks to depreciation. In a nutshell: “You want the length of the loan to be as short as you can possibly afford,” advises Moody.

With that in mind, read the fine print concerning possible fees in the loan. Some loans come with a payment penalty, which you’ll be charged if you pay the loan off early.

Take your best pre-approved financing option to the dealership when you’re ready to buy. You’ll still want to consider the financing option the dealer offers, but already having a loan will give you leverage in the negotiations.

A dealer may give you a great price on the car, but offer you a higher interest rate as a way to pump up its profits. With financing already in place, you can focus on the other aspects of the buying process and not feel tied to that offer, says Edmunds.com’s Reed.

If the dealer offers a higher interest rate or longer term than your pre-approved loan does, ask if they can beat or match the offer. If the dealership can beat the interest rate you’ve already been approved for, or has a similar rate but fewer fees, take the dealership’s financing. Otherwise, go with your preapproved offer.

Read Next: Should I Buy a Used Car or a New Vehicle?

Advertiser Disclosure

The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

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