One of the biggest mistakes that a number of car buyers make is that they forget to include the cost of financing the loan in the total price of the car. This is important because your car, unlike your home, is not an investment. In fact, you can expect the car’s value to depreciate faster than you can repay the loan. This leaves you owing the lender more than what your car is worth.
But, that said, many of us still need a car to get to our jobs, but we don’t have piles of cash lying around to buy a car outright. That’s why so many of us get auto financing. While getting an auto loan might not be something you can avoid, there are things you can do to ensure you get a better rate on your loan.
Understand Your Credit Score
Your credit score has an effect on your loan rate. If you have a poor credit score, expect to pay more in interest. So, while dealerships may advertise really low rates, it’s important that you check your credit score to understand where you stand. The lower your credit score, the more you’ll need to shop around.
Keep Your Loan Term Short
Yes, opting for a long-term loan will lower your monthly payment. But, you’ll end up paying more interest – and this is a substantial cost. So, make sure to opt for a short loan term.
Put at Least 20% Down
This may seem like a no-brainer, but making a larger down payment reduces your loan amount. While driving off in a new car without owing anything at all to the lender may seem tempting, you’ll eventually have to pay back the whole loan amount plus interest. So, make a large down payment.
Don’t Finance the Extra Costs
Don’t finance additional costs that are part of purchasing the vehicle, in the loan. It’s best if you pay for these extras in cash.
Make sure to also monitor loan rates offered by other lenders often. If you find a lender offering a loan at a rate considerably lower than what you’re paying, you may want to refinance your loan.