Rates going up, but you can get a car loan deal

Interest rates on new car loans have hit high levels not seen since 2010, driving consumers to work a little harder when shopping for the best deals.

The average rate on a new car loan was 5.2 percent in February, up from an average 4.4 percent in February 2013, according to Edmunds.com. Average rates had fallen as low as 3.9 percent back in December 2012, down from 5.3 percent in February 2010.

What’s more startling: Only 31.6 percent of consumers who bought or leased a new car even bothered to negotiate a car loan rate, compared with 76 percent who negotiated the price of the car or truck, according to a Federal Reserve survey of households in 2015. And 11 percent of borrowers do not know the interest rate on their car loan, the survey said.

Of course, the rates are not even close to the average 8 percent for a car loan consumers faced in January 2006, according to Jessica Caldwell, executive director of industry analysis for Edmunds.com. But many consumers will end up spending more money to buy a new car or truck this year.

The average payment hit $527 a month in February, up from $462 five years ago, according to Edmunds. Consumers are buying pricier SUVs and trucks, borrowing more money and taking out longer-term loans.

So, how do you find the best deal on a car loan? Here are some tips to consider:

Do not dwell only on the car payment

It might seem responsible to begin shopping by thinking you can afford $300 a month for a car. After all, looking at the monthly payment is how you decide to buy a cell phone or sign up for Netflix.

But car deals can trick you with hidden costs tucked into a monthly payment that ultimately will boost what you’re paying in the long run.

Caldwell said a car dealer might help you get a lower monthly payment by extending the term of that car loan, for example. But if you’re taking out a six-year or a seven-year car loan, you’re spending more money overall and taking on the risk that you’d still owe money on the car if you need a new one in three years.

Know your credit score before you car shop

A higher credit score means a lower interest rate. Make sure to get a free copy of your credit report long before you apply for a car loan to have enough time to dispute any errors or incorrect information that may be dragging down your credit score.

To boost that score, you’d also want to pay down credit card balances, particularly if you can get the balance below 10 percent of the credit line, said Greg McBride, chief financial analyst at Bankrate.com.

Take time to shop for a car loan

Many consumers do not go online to even review going rates for car loans before they talk to a dealer about financing.

“Most car buyers just take whatever rate they’re given,” said Miron Lulic, founder and CEO of SuperMoney, a tech startup.

But he said car shoppers should ask for a better rate. A $35,000 five-year car loan with a 7 percent annual percentage rate will cost you roughly $3,800 more than the same loan with a 3 percent APR.