Who Gets the Best Car Loans?

Last week, Jack and Jane bought the very same car for the very same amount of money. Each month, they will make roughly the same monthly car loan payment. However, by the time they make their last payment, Jack will pay thousands of dollars less for his car than Jane will. Why?

Shop Carefully

Jack carefully shopped for his loan. He got loan quotes from his bank, from the dealer, and from a variety of independent lenders. He knew that he would be making a major credit purchase months before he bought his car. So, he checked his credit rating. To his surprise, there were mistakes in his record that reduced his score, which he had corrected. Then, Jack learned that he would be saving considerable cash in the long run by paying off his loan in 36 months, rather than on the 60-month payment schedule that many opt to use. By the time that Jack arranged his loan, he had found the very lowest rate available.

What else did Jack do to qualify for the lowest rate? First, Jack was earning over twice the income of Jane. Second, he had that perfect history of credit, once his record was cleared. He had a savings account with $20,000 in it, he made a handsome down payment on his car, and he had preferred customer status at his bank.

Jane, on the other hand, was in a rush to buy her new car - a big mistake whenever you make a major purchase. As a result, Jane did not have time to shop around for the best car loan. Also, she did not have time to save for a significant down payment. So she had to borrow more than Jack did and stretch her payments over a longer period of time. Her lesson: the longer the loan, the higher the rate of interest she will pay on life of the loan.

Credit Matters

To make matters worse, Jane had not been careful recently in her payments on her bills and credit cards. Her credit score prevented her from getting the lowest interest rate. Had she had more time to prepare for a new car purchase, she would have been more careful to keep her payments timely. And finally, Jane was due for a promotion that would have meant more money each month and a larger down payment. All in all, waiting until she was better prepared and financially stronger would have raised Jane’s scores and allowed her to get the best loan.