Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Feb 25, 2021

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  • You can negotiate the sale price of a vehicle with a dealership or a private seller, but you can negotiate the terms of your auto loan as well
  • While there are limitations to how much you can negotiate an auto loan, there is some wiggle room for you to work with
  • Successfully negotiating a more beneficial auto loan will take preparation

Can you negotiate an auto loan with your lending institution?

The answer is yes. You have the ability to negotiate your auto loan just like you would any other transaction.

However, if you want to successfully negotiate better terms for your auto loan, you will have to be prepared. You’ll need to have a comprehensive understanding of your finances and financial standing.

You’ll also need to know how much you can afford, how much the vehicle you want to purchase costs, and how long it will likely take you to pay the loan back.

When you have a comprehensive understanding of all of this information, you are ready to begin shopping around for an auto loan.

If you’re ready to learn how to negotiate better terms for your auto loan, keep reading below. Enter your ZIP code above to compare rates on auto loans in your area.

How can I negotiate a better auto loan?

The first step in how to negotiate an auto loan is getting your finances in order. If you want to get the most affordable auto loan interest rates, you will need to improve your credit score first.

Lenders are wary of people with bad credit scores and will charge them higher interest rates. Keeping this in mind, you might want to focus on improving your credit score before you look to purchase a new vehicle.

If you’re interested in learning more about how you can improve your credit score, Experian has helpful resources that you can peruse. The stronger your credit score is, the more negotiating power you will have with auto lenders.

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Should I go with the auto lender that the dealership works with?

Dealerships have finance departments that work with lenders to get you auto loans. Here is the truth. Dealerships are not required legally to offer you the best auto loan interest rate that you qualify for.

In fact, many times, dealerships will get paid an incentive for helping arrange the financing between you and the lender and this will be charged to your financing package. Is there any way for consumers to get around this?

You can work with lenders on your own. You are not obligated to use the dealership’s financing department. You can shop around with multiple lenders and find the best rates that you apply for.

Shopping around for auto loan quotes will also give you the ability to negotiate your interest rate directly with the lender. Some lenders may even offer to beat rates offered by the competition.

It pays to shop around and educate yourself on the auto loan interest rates that you qualify for.

Can I lower my auto loan interest rates by making a bigger down payment?

If you make a bigger down payment, you will have to borrow less money from a lender. The less money you borrow, the less risk you pose to the lender. This means you can get lower interest rates.

The higher the risk you pose, the higher your interest rates will be in turn. By making a larger down payment on your vehicle purchase, you can lower your auto loan rates.

This is why it is important to know your finances and understand how much you can afford to pay.

If you can make a big down payment, it is in your best interests to do so, and it will help you negotiate a lower interest rate on your auto loan.

Will negotiating a better price on my vehicle purchase affect my auto loan interest rate?

If you can negotiate a better price for your purchase from the dealership’s sales team, you will need to borrow less money to pay for your new vehicle.

Much in the same way that making a larger down payment reduces your risk, reducing the price of the vehicle you want to buy also reduces your total risk.

This means you can get a more competitive auto loan interest rate because you pose less of a risk to a lender. Any way you can reduce your total risk gives you negotiating power when working with an auto lender.

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Will choosing a shorter repayment term affect my auto loan interest rates?

Yes, lenders will typically offer lower interest rates on loans with shorter terms.

Why is this? Well, you guessed it, there is less risk of a person defaulting on a short term loan than there is on a long term auto loan.

Opting to go with a shorter repayment term can help you lower your auto loan interest rates, but keep in mind that this will also increase the amount of each monthly payment too.

Will a cosigner help me get a better interest rate?

You can negotiate a better auto loan interest rate if you also have another person with a good credit score co-sign your loan. This mitigates the risk the lending company is taking, and it gives you more negotiating power when it comes to the rate of interest on your auto loan.

Cosigners should keep in mind that they will be responsible for your debt if you are unable to make your auto loan payments.

They should also be aware that this debt will appear on their credit report as well, and if there are any issues with timely payments, it will also affect their credit score.

How to Negotiate an Auto Loan: The Bottom Line

Getting the lowest auto loan interest rates requires you to lower the amount of risk you pose to lenders.

The best way to negotiate an auto loan is to be in a position of good credit and healthy finances. Take your time to understand your credit, finances, and the type of loan you need before going to the dealership.

If you’re ready to negotiate an auto loan, enter your ZIP code below to compare auto loan interest rates in your area.