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Car Buying

Buying a Car: Can You Negotiate Your Interest Rate?

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author photo by Doug DeMuro

Many car shoppers know that several aspects of the car-buying process are negotiable -- from the purchase price to the trade-in value, and even the prices of options and accessories. But is it possible to negotiate the interest rate on your loan? We have the answer.

First, Get the Best Rate

If you're concerned about your rate, we strongly suggest taking the time to shop around for a loan before heading into a dealer to check out any cars. Go to your bank, and visit other banks to see what interest rates you'll be quoted. It's typically a myth that shopping for a good rate will hurt your credit: While a few credit checks may drop your score a few points, they'll be worth the savings if you can get a few hundred -- or a few thousand -- dollars off with a better monthly payment.

Next, Negotiate Your Loan

Once you have the best rate you can get, it's time to negotiate. The simple truth is that interest rates rarely have as much flexibility as items like purchase price and trade-in value -- but that doesn't mean it's impossible to negotiate your rate.

First, we'd suggest trying to negotiate with the lender who quoted you the best rate. Mention that you've found better financing terms elsewhere, and ask if they'd be willing to cut the rate a little in order to have your business. Sometimes, a lender will knock a small amount off in order to keep you happy.

If that doesn't work, try a different lender. Armed with the rate you've already received, suggest that you'll be going with a competitor unless they can beat your rate. This tactic may especially work at a dealership, where the finance department is likely to increase your rate slightly in order to make a better profit. Most dealers, and many of the lenders they work with, would rather make a smaller profit than lose any profit at all because you've chosen a different lender.

Don't Be Disappointed

Negotiating your interest rate is hard, and it doesn't always work. Many lenders are strict with their quotes, and they won't be willing to cut their rates, no matter how much negotiating you do. If that happens to you, we suggest that you don't become disappointed. Instead, focus on negotiating other aspects of your car purchase, including your trade-in value and your purchase price. But we strongly suggest that you check with several lenders to find the best possible interest rate, even if you aren't able to negotiate it.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
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Buying a Car: Can You Negotiate Your Interest Rate?