Buying a car is a very big commitment, especially when you have to take out an auto loan to pay for it. With interest rates and monthly payments, auto loans have the tendency to get pretty expensive. Luckily there are some ways to make an auto loan a little less stressful. The following 8 tips will save you money on your next auto loan.
1. Check Your Credit Score
It is incredibly important to check your credit score prior to applying for auto financing. This is because credit reports often contain false or misleading information that can lead to increased interest rates and higher payments. If you find any discrepancies with your credit score, work to get them resolved before you apply for an auto loan. Although it may seem like a bother, it will be well worth it when you save money on your auto loan.
2. Consider a Lease
2. Consider a Lease
Although many people think that leases have become extinct, they are still very alive in the world of car sales. If you are a person that drives a relatively low number of miles each year, you may want to look into leasing instead of buying. Because you are not paying the total price for an automobile, car dealerships can charge you much less every month. Leases are also good for people who get tired of driving the same car for long periods of time, as they usually only last 3 years or less. Keep in mind that when your lease is up, you will have to give the car back. Leases may not be desirable for some people, but may be perfect for others.
3. Browse Lenders
Before you go car shopping, it is advisable to shop around with various lenders. This will allow you to get the best possible interest rate and loan term, which will subsequently save you money. Even though car dealerships offer financing for customers, the interest rates are often much higher and the loan terms are usually much longer. Arranging private financing through your bank or credit union can be a great way to get a better rate and loan term.
4. Make a Down Payment
Some people do not realize the importance of a down payment when it comes to buying a new car. The truth is down payments are incredibly important and can often reduce payments by quite a bit. If you do not have any cash on hand to use for a down payment, try saving a certain amount of money each month until you accumulate a percentage of the purchase price. This amount can drastically reduce your monthly payments, depending on the price of the car you are looking at.
5. Get a Shorter Term if Possible
Many car buyers think that longer-term auto loans are the best way to save money. Although 5 or 6-year auto loans will reduce the amount of your monthly payments, they usually come with a much higher interest rate. It is best to get a loan with the shortest term you can possibly afford. While your monthly payments will be higher, your interest rate will probably be considerably lower. You will also have your car paid off much sooner, meaning the resale or trade-in value will be higher.
6. Pay Cash for Taxes and Other Fees
You may not realize how much money taxes, registration, documentation, warranties, and other things can add to your auto loan. In reality, all of these extra fees can tack on more money to your auto loan, making your monthly payments go way up. Try to pay cash for these types of things, that way you can avoid adding them onto your loan.
7. Use Caution with Zero-Percent Financing
Zero-percent financing is a great option for many buyers, provided they are not forfeiting any good rebates or other incentives. Make sure you explore all of your available options before choosing zero-percent financing, because some rebates and incentives can actually reduce your monthly payments more than zero-percent financing can. Do your math and make sure you choose the option that will save you the most money in the long run.
8. Use Your Home’s Equity
If you have available equity in your home, it may be a great way to pay for a new car. Because the interest rates of home equity loans and home equity lines of credit (HELOC) can be much lower than automobile loan rates, it may be the best way to save money on a car. Just be sure you can pay the monthly payments, because your house is your collateral.
These tips will save you money on your next auto loan. Just remember to always shop around before choosing a car and dealership. This will get you the car you want for a price that is reasonable.
Guest post from Cameron Gray. Cameron writes for AutoInsuranceQuotes.org.