Cars are not investments. They cost a lot of money and start depreciating as soon as you buy them. Unless you’re paying for your car completely in cash, it’s important that you pay as little interest as possible on a car loan. Here’s how you can do that.
Know Your Credit Score Before Visiting Dealerships
Always check and track your credit report and score before applying for a loan. Spend time improving your credit score if possible.
Get Financing Quotes
People with excellent credit history get the best offers everywhere. And people with poor credit history need to work harder to find good deals. Still, everyone applying for a loan should shop around for the best quote possible. Check with local banks and credit unions for some of the most competitive interest rates for new and used cars.
Keep the Term Short
A shorter loan term means that your interest rate is lower, but your monthly payment is higher. That is the right way to go. Salespeople will try to push for lower monthly payments and extended loan terms, but don’t fall for it. Longer terms mean you pay more interest. So keep the term of the loan between 36 and 60 months.
Put 20% as A Down Payment
Save up till you can do this. This way, you’ll borrow even lesser money, and be able to get debt-free sooner. Never buy a car without a substantial down-payment.
Pay for Extras, Fees, and Taxes in Cash
Salespeople may try to bundle sales tax, registration fees, documentation fees, and extras like extended warranties into your loan. But why would you want to pay interest on those things? It’s a bad idea. Pay for all these with cash, and keep how much you borrow to a minimum.
If you’ve already gotten stuck with a bad loan, you can always refinance it. If your credit has improved over time, and your car isn’t too old, look for refinancing quotes. Check your local credit union and with online lenders. Ensure that you get a lower interest rate and a shorter term.