Don’t want to spend too much for an auto loan? You should be wary of the interest payments. The interest rate and the dollar amount it translates to have a huge impact on your monthly car payments. So if you don’t want to overpay for your car, watch how much interest you pay. We have some tips below on how to keep it low.
1) Do not extend your repayments.
A lot of borrowers these days believe that extending the loan term can save them more money. Long auto loan terms seem more affordable because of the low monthly payments. But this is only because the principal is distributed to many months.
Shorter terms aren’t appealing because the monthly payments look bigger compared to longer terms. But this does not necessarily mean that shorter terms are more expensive. First, long loan terms always carry higher interest rates. That’s a general rule of thumb. With this in mind, you can already say that a longer loan term is indeed costlier. Second, shorter terms may have bigger monthly payments than long terms but they don’t make you pay too much interest.
2) Who says down payment should just be 20%?
Experts have long established that 20% is the ideal down payment for a car purchase. But they never said that putting more money down is wrong. In fact, a bigger down payment can help you get easily approved for a loan and obtain a lower interest rate.
But not everyone can dole out a huge amount so easily. This is why buying a car and taking out a loan for it need enough preparation. Save up for the down payment as early as you can. The trade-in of your current vehicle can be used as your down payment. If you’re buying new, tell the dealer that you want to use the rebate as money down.
3) Turn Los Angeles upside down for the best auto loan rate.
Another way to pay less interest on your car loan is to find the lowest possible rate in your area. As of this writing, 48-month new auto loan rates here in L.A. range from 1.99% to 4.15% with an average of 2.27% according to Bankrate.com. There are a lot of banks, credit unions and other financial institutions operating in the city that offer competitive rates. Find who these competitive and legitimate lenders are and compare the interest rates they offer.
But we want to remind you that a low interest rate is not synonymous to the best deal. Pay attention to how much an offer costs overall by looking at the annual percentage rate or APR and not just the monthly interest rate.
4) Apply with good credit.
Although there are ways to get a reasonable auto loan interest rate despite bad credit, nothing beats a good credit in getting a certainly great financing deal. Why? An excellent credit tells lenders that you are unlikely to default on the loan. Your business is almost not risky. In this case, lenders are willing to give you favorable rates and even other perks.
If you want to get the best deal and make sure you save on your car loan, work on acquiring a better credit. Not only you can get a better rate when you have better credit but you can also get approved for any loan more easily.