Categories:   Tips & Insights For Car Buying
Maximizing Your Auto Loan: Tips and Tricks to Lower Your Interest Rate
In today's age, vehicles are an asset. Some use it to create income, while others use it for entertainment, like road trips, restaurant trips, family visits, and more.
In today's age, vehicles are an asset. Some use it to create income, while others use it for entertainment, like road trips, restaurant trips, family visits, and more. However, not everyone can afford to make the full payment for a car. If your job requires you to have a vehicle, but you don't possess one and can't afford the total price, it might be best to take out a loan.
If you're an employee that gets your monthly paycheck stub, then you'll have an easier time with loans since it'll help you calculate how much you can offer as a monthly payment for a car. Even with this information, do more research before jumping in. There are several ways to get the best offers when applying for one. Here are five tips to help lower your interest rate in car shopping.
1. Maintain Your Credit Card Score
Before you start looking for cars, knowing where you stand in your credit score is important. Keep track of your score regularly and clear any outstanding dues you may have. A good credit score can help lower interest rates on loans, while a poor one may give higher interest rates and deter some from loaning you.
If you plan to take out a loan, ensure you have a consistent payment history for at least six months. This way, you'll reduce your APR and gain a few points on your credit score.
Your credit score information will also help you budget. But knowing what it is, you'll get an idea of how big of an interest rate you'll receive and understand how much of a monthly payment you'll be going through.
2. Check Out Different Lenders
When shopping for loans, it's best to check out all your options. Going to multiple loan offers will help you find the best and cheapest options out there. Moreover, you can apply for car loan offers on lenders' websites. Remember, this option will take longer than settling for the first lender you encounter, but the results could provide a cheaper interest rate and save you money.
3. Make a Large Down Payment
The more money you borrow, the more likely it'll be that you'll default on the payments. Additionally, a sizeable down payment or car exchange may help you be eligible for a lower interest rate.
Remember, interest doesn't mean you return the exact same amount you borrowed. By taking out a loan, you'll have to pay more than what you owe. By not putting a down payment and taking a loan on the whole thing, your monthly payments would climb. Since a car is a depreciating asset, you'll end up paying a lot of money ( due to high interest ) for a vehicle that wouldn't sell for the same amount it once cost in market value, let alone the price after you finished paying it with interest.
Get a Shorter Term Loan
It may seem like a short-term solution to get a loan with a longer length, but by doing this, you'll end up spending more money in interest and may cause other monetary problems if you decide to trade in or sell your car. Generally, lenders would offer lower interest rates with shorter repayment terms. A lower interest rate can help you save on interest and lower the overall charges over the length of the loan. But remember, a shorter repayment term comes with higher monthly payments. So make sure you can afford to make the payments before signing.
5. Make Additional Payments
Before signing the contract, ensure it doesn't contain any fees for prepaying the loan early. This is crucial because you want to ensure you gain the full benefits of the deal.
Interest rates can take a long time to pay back and are costly. And this doesn't include any unexpected costs you'd face where you'd need to use the money instead of making your monthly payments, like accidents or illnesses. This is why it's crucial to repay the debt asap, so you'll eventually have a better savings account for unexpected calamities.
If you don't have the option not to have a fine, then make sure the amount doesn't cost more than the interest you'll pay over the rest of the loan.
When you pay more on your car payment, you'll end up paying off your loan faster and reduce your overall interest charges. Following are a few strategies to make additional payments.
1. Utilise any extra money in the loan
Any extra money you receive, such as bonuses or raises, can be put into your car loan. Remember, the quicker you pay off your debt, the less you'll have to pay on interest.
2. Use the round-up method
Rounding up your payments to the next highest $50 is one of the best way to lower your overall interest payments. This way, you're reducing your balance faster without putting a significant strain on your regular budget. For example, if your monthly payment is $370, then consider sending a monthly payment of $400.
3. Make bi-weekly payments
Choosing to pay biweekly can also help you save more on interest and pay down your car loan faster than a monthly payment plan.
Getting a loan can be a hassle, but it can provide some relief. If you're required to take one out, then make sure you get the most out of the deal. Find one that has the least amount of interest, is short-termed, and is affordable. That way, you'll be able to pay back the amount and save as much money as possible.