One of your life's biggest investments is buying a new car. The wisest choice when handling large investments is to pay upfront. However, that might not be a realistic option if you don't have enough budget.

Thus, the second-best option is to take out a loan. However, that should be done with precautions. As loans are a commitment that may take a year or years to pay off, it's important that you're ready to take on a load of a considerable value.

Before anything else, here are things you must take note of before committing to an auto loan:

  1. Understand Dealership Financing

The financing promos some dealerships will offer may be enticing as these might provide little to no interest. However, it's important to take note that these financing options are not available to all. Depending on the promo, certain factors must be considered for you to be eligible. The most common factor to determine the eligibility of customers is their credit score and financial status. This is why looking for outside financing might be the best option. For instance, you can check sites like https://www.empowerfcu.com/ for their auto loans which may be better than your dealership's in-house financing.

  1. Evaluate your Credit Score

The credit score will determine the availability or attainability of some financing options. It'll be important to understand it, while you must take into account the factors that led to your credit score in the first place.

The credit score might be due to you not having a good track record as a borrower. Sometimes, it's simply because you didn't borrow enough to have a good score. This will determine the amount of interest offered to you. In fact, this will determine if your application for a loan will be accepted or rejected by the dealership or bank.

Before you dive into an auto loan, check you score first. A rejection can be recorded. Find ways to improve your score before you apply for a car loan if you have a low credit score.

  1. Low - Rate of Interest

Interest rates will determine how much you'll end up paying when it's all over. As much as possible, look for the lowest one. Leverage your asset and your credit score.

Some dealerships intentionally offer higher interest rates, fully expecting you to ask for a reduction. You can play into their hand and haggle for a much lower interest rate.

However, the best option is to shop around and look for the lowest offered rates. Banks will be happy to take your loan, especially if you have a decent credit score.

You might even try giving the highest possible down payment your budget can afford. This will help you get the lowest rates.

4. Length Of Loan

Getting a loan means paying it long-term. As for car loans, you're required to pay the remaining balance of your loan even if you lose the car.

Auto loans may seem low when in monthly payments, but if it will take you five years or more to pay for it, then you may be paying more. It's because the longer you have the loan, the interest piles up. So, instead of paying a USD 5,000 for a new car purchase, it may take you USD 6,000 or more in total for a five-year or more loan term.

If you want to avoid paying such a price, you may want to give a higher down payment or lessen the term contract.

5. Calculate The Total Expenses

As for the total fees, calculate service tax, and processing fees for the loan. You can use financial websites to calculate these fees and check whether your monthly payment is still affordable.

Sometimes, auto loan providers don't include these fees when offering you a loan. Thus, you might get surprised when you start to get your contract or pay your dues.

You can also compare the processing fees of various lending companies to check the best one. Sometimes, one may give out higher processing fees compared with others. Doing your due diligence will help you find the lower one.

As for the service tax, ask or search whether you can pay it annually or in a one-time lump sum. That way, you'll know if your finances can still handle it.

6. Insurance

As for insurance, it's best to get it separately from your lender. Sometimes, financial institutions include insurance in their loans. This will make your loan payment higher. Thus, it's best to ask your lender if they add such. If they do, negotiate and say that you prefer another insurance provider.


Getting a car loan is beneficial if you get the best deal when purchasing a new car. Thus, you'll need to consider its interest rate, total fees included, insurance included, and other financing options. Don't grab your dealership's financing option without comparing it with other car loans. Compare their offers, payment terms, and total length of the contract to evaluate which one is the best for you.