Find the Best Auto Financing

Just like with your trade-in, it pays to get competitive offers before heading to the dealership. For the average buyer, once they've agreed on a price, the dealer knows they're on the hook and can slide almost any financing deal through without much scrutiny. But as a smart buyer, you know that the financing you choose can add or save hundreds (sometimes thousands) of dollars onto the life of a loan or lease.

Know your credit score and get printed rate quotes or lender checks in advance to take with you to the dealership.

Step 1 - Know your Credit (FICO) Score

Your credit rating, also known as your FICO score, will have the biggest impact on what interest rate you can get on a car loan (or whether you can get a loan at all). A score between 720 and 850 typically guarantees the best rate while dropping below that could affect your rate significantly.

For example, on a $15,000 loan, a 750 score may get you a rate of 7.5% on a 5 year loan resulting in a monthly payment of $300. The same loan with a 700 score and rate of 9.5% would have monthly payments of $315 - a cost of $900 over the life of the loan.

A low credit score can affect your car insurance premiums as well. Insurers use this as an indicator of whether you will pay your premiums on time.

You are entitled to a free credit report once a year from each of the three credit bureaus. So be sure to order a copy from one or all of them (they each receive information directly from lenders and can differ from each other). While the reports are free, your scores are not and are important to know because they affect your bottom line. Check the reports for errors or signs of identity theft and correct them as soon as possible. The credit bureaus' websites can also provide you with tips to improve your credit and raise your scores.

Each bureau offers different packages and they are purposely confusing...sound familiar? They all offer some form of credit monitoring, your credit report, and your credit score. I highly suggest purchasing your Equifax and TransUnion FICO scores and reports together from myFICO. Experian is no longer a part of the myFICO package because they ended their relationship in February of 2009. The score and report package is currently called FICOŽ Standard, but read the description carefully as marketing plans change.

An alternative is to visit each of the sites individually (below), but read the fine print closely before purchasing anything. Credit monitoring services can be valuable, but you can do this for free yourself by getting a free copy of your credit report from a different bureau every four months (each is required to give you a free copy once a year). Again, be aware that lenders can and do report different information to each of the bureaus.

All-in one scores and reports

Three National Credit Reporting Bureaus

Note: I did not include a link to TransUnion because you may encounter pop-up messages and chat windows when you try to navigate away from their site. You can get your TransUnion credit report from myFICO.

Checking credit yourself will not affect your credit score, however, when lenders check, it has the potential to bring your score down. The credit bureaus will treat multiple inquiries within a 30 day period as a single inquiry, so make sure you are close to purchasing and then get all your rate quotes and fill out credit applications within a short time period.