If you’re looking to purchase a new car, chances are good that you’re looking for a way to finance that purchase. Whether you’re looking at the possibility of taking out a personal loan, a car loan, or some other kind of lump sum influx of cash, there are ways that you could save quite a bit of money.
Let’s go over the best ways to save money on auto financing below.
Understand Your Credit Score before applying
Before you go to the dealership and before you look to take out any kind of loan, make sure to check your credit score. In fact, if there is ever a time to check your score, it’s probably right before you are considering taking out an auto loan.
To put it simply, you can usually get a car loan even if you have bad credit. While that sounds nice on the surface, the reason why it is easier to get auto financing with bad credit is because it is easy for your lender to repossess your car if you don’t pay.
If you have bad credit and you get approved for a loan, you might be so happy about that fact that you forget to even ask about more favorable interest rates. Always ask about whether or not you can get a better deal out of your loan.
Dealerships are sometimes able to offer better rates for loans than banks, but don’t be fooled by dealerships that advertise rates like 2.9 percent, 1.9 percent, or sometimes even lower. These rates are available exclusively for potential borrowers with the very best credit scores (a FICO score of 750 or higher). If you’re not amongst the lucky few to have a score that high, its best to know what you can realistically expect out a loan that you get from either the bank or a dealership.
If You Don’t Have Excellent Credit, Know Before You Go Get A Car Loan
If you have great credit, you’re probably going to get a great deal for a loan whether you get it from the bank or an auto dealer. If you are not someone with great credit, however, you’re going to want to make sure you have tapped into all of your options.
One great option is to seek financing online. With many online lenders, you complete an online credit application and then you are presented options of loans that including maximum amounts and corresponding interest rates.
The great thing about going this route initially is that you don’t have to actually use this loan. You can, however, use it as leverage. Bring this loan to a dealership and tell them that you have already been approved with these rates. They could very well work their magic and get you an even more favorable deal for an auto loan.
Keep the Loan Term as Short as Possible
When you are looking for auto financing, you will find that the payment term varies amongst different loans. Some are for just a few years, others are for much longer. While a longer loan term means lower monthly payments, it also means a substantially higher overall cost. That is of course because the longer you are repaying a loan, the longer you are accruing interest and other fees.
It’s important for you to do the work on your own to figure out how much you can afford for your monthly payments to make your term as short as it can be. Once you know how much you really can afford to pay per month, it will give you a much better idea of what kind of loans you should be looking for.
Put as Much Money Down as Possible with Your Auto Loan
On top of getting a short-term loan, another way to save tons of money worth of interest is to put as much money down as you can.
This might sound obvious, but dealerships can definitely make it tempting for prospective buyers by sometimes offering no down payments whatsoever.
The reason why putting money down is such a good idea is for a number of reasons. Not only does it potentially shorten the amount of time you need to pay back your loan, it also gives you more options in the future. Say you need to sell your new car in the future. If you still owe more on your car than it is worth, you may not be able to sell it. A larger down payment makes that possibility much less likely.
Pay for Taxes and Fees with Cash Rather Than Finance
Another tip to save money on your car financing is to pay for the taxes and fees related to the initial purchase with your own money.
Dealerships will often be more than willing to add these taxes and fees into the financing that they offer you, but doing that could put you in a precarious financial situation. Taking on these added expenses into your loan could lead you to being upside down in your car loan. That means that once you drive off the lot, you’ll be owing more on your loan than the worth of the car.
Refinancing Your Loan
If you are already paying off a car loan and want to find a way to lower your interest rates, refinancing could certainly be the answer. This is especially true if your credit profile has improved since making the initial purchase on the car and taking out your initial loan. Whether it’s been one year or several years, refinancing your loan is a great option for consumer who are looking to decrease their monthly auto payments.
Luckily for those who are looking to refinance, it is a fairly straightforward process. You can either attempt to work with your current lender to refinance, or reach out to other companies that specialize in auto loan refinancing.
In order to refinance you’re going to want to pull your credit report again so that you have your most up-to-date report. Then, you’re going to want to shop around for the right loan refinancing option. Just like your original loan, make sure to submit all your applications within a week or two of one another so that credit bureaus only count the multiple pulls as one pull, resulting in a smaller credit hit. Finally, keep an eye on the overall interest rates. If rates are going up across the industry, you might have a difficult time finding a better deal. If interest rates are going down, however, you could score an even better deal. It’s all about choosing the right time to refinance.