back to articles | November 19, 2021 | Greg Thibodeau

Categories: Auto Loans & Financing Vehicle & Buying Research

5 Advantages to Customizing Your Car Loan

Shopping around for a car loan is just as important as shopping around for the car. Auto loans come with various options and with different price points. Choose a customized car loan for more choices and a better fit.


Shopping around for a car loan is just as important as shopping around for the car. Auto loans come with various options and with different price points. Choose a customized car loan for more choices and a better fit.

There is a fee for borrowing money. The amount you borrow, the interest rate, and the loan term will determine how much you will have to pay for financing. The cost of borrowing money will add hundreds and more often thousands of dollars to the ticket price of the vehicle.

You will repay your loan through a pre-established payment plan. These payments are usually due at least monthly. This is the amount of money you will have to do without for the month making it crucial to consider your budget when shopping for your auto loan.

The goal is to end up with financing that doesn’t cost too much while staying within your budget. Shopping around for a customized car loan can make it easier to choose financing that meets your needs.

1. Pay What You Can Afford

Your budget will determine how much you can afford to spend on car payments. Choosing a customized car loan can help you stay within your budget by allowing you to decide how much you want to pay towards your debt each month. Extending the term of your loan lets you take more time to repay the loan resulting in smaller monthly payments.

The disadvantage to long term loans is that they come with higher interest rates. This means that while your monthly payments will be lower, your long term loan will cost you more overall. It’s a good idea to choose the shortest term that your budget will allow.

2. Keep More Of Your Money

The interest on a loan is just like a price tag. This is what your financing will actually cost you over the life of the loan. Lower interest can save you a lot and while there are factors beyond your control, there are some things you can do with a customized car loan to end up with a good rate.

Your credit score is a big part of what determines the interest rate you are eligible for. For the best deals you typically need a credit score of at least 800 and the highest rates are usually reserved for those with a score of less than 500. If you’re like most people and you fall somewhere in that range, try to improve your credit before you shop for financing.

The term of your loan is the amount of time you have to pay back what you borrowed and it has an effect on the interest rate you will be offered. For the best rate many lenders require a term of 36 months or less. The further your term gets from this number, the higher your interest rate will be.

Interest is based on the statistical risk that a borrower represents. Older vehicles come with risks of their own and for this reason cars that are more than a year old are financed at different rates than their newer counterparts. Financial institutions prefer that you borrow no more than 80% of the vehicle’s value making a strong case for down payments.

You can reduce how much you need to borrow by having a down payment or by purchasing a cheaper vehicle. Reducing the amount you need to borrow means that the amount you are charged interest on is smaller. Borrowing less almost always means paying less but some financial institutions give you better rates for loans of $30,000 or more so read the fine print and do the math.

3. Keep Your Options Open

Making the best financing choices means balancing your monthly budget with your eligibility to get the best rate. These two are often opposing forces meaning that your financial situation can limit your ability to get a reduced interest rate. You don’t want to overextend yourself but what if you find that you can afford to pay a little more than you thought?

Keep your options open with a customized car loan that lets you make extra payments to save money. Open loans allow you to bump up your loan payments, adjust your payment schedule, or pay off the remaining balance in full. Diverting extra funds to your open loan means that you can repay your debt earlier and save on the interest you would have paid.

4. Pay On Your Schedule

A customized car loan can allow you to decide how often you want to make payments. Most lenders let you pay monthly or bi-weekly. Less frequent monthly payments may seem like a good idea but there are some benefits to more frequent bi-weekly payments.

Making payments bi-weekly might help ease their impact on your finances. Splitting your monthly payment in half and paying it every two weeks can make it easier to budget your spending. Many people get paid bi-weekly and having your car payment run on the same schedule can help you make your payments on time.

An added bonus to bi-weekly payments is that over the course of a year you end up paying the equivalent of 13 monthly payments instead of the 12 you would be making if you were paying monthly. That’s like making an additional payment every year. This way you can shave time off your loan and save on interest.

5. Fix Past Mistakes

Just because you settled on a loan that isn’t right for you doesn’t mean you’re stuck with it. In many cases you can refinance and upgrade to a customized car loan that works. Refinancing an existing car loan means getting a new loan to pay off the old loan.

Refinancing is a great option if you made a bad choice the first time or if your situation has changed. If you have improved your credit score or increased your income you may now be eligible for a better interest rate. Throwing in any savings you may have accumulated or adjusting the loan term can help you save too.

Even if you’re happy with a car loan you may have, it never hurts to shop around. A bank or credit union is a good choice for refinancing options. There are excellent online resources to check what refinancing options are available to you.

Don’t settle for a cookie cutter auto loan. Go the extra mile and get a customized car loan to fit your needs, lifestyle, and budget. Balance your budget and save on auto financing with a loan that works for your situation and your life.