You don’t have to put up with a high-interest auto loan when you can do something to get a low interest rate. There are several ways to lower the interest rate you will most likely get on your auto loan. Let us teach you how. Read on.
1) Scour auto loan quotes for the lowest interest rate.
One way to get a low interest rate on your car loan is to search for it. You can do that by shopping around—getting quotes from various lenders here in San Diego, doing some math, and comparing offers.
Quick tip: Use an auto loan calculator when comparing auto loan quotes.
Many car buyers miss out on nicer offers because they fail to consider other options, settling immediately with the first one that comes their way. The Better Business Bureau suggests looking at 3 options or more before finally taking an offer.
2) Pay off the auto loan in no more than 60 months.
A lot of car buyers think that extending the repayment period saves them more money. You have to do some math again to find out whether this is true.
Repayment periods of more than 60 months are considered long. Long loan terms indeed reduce monthly payments, making the deal appear affordable and reasonable. But what many car buyers do not realize about these terms is they pay more interest in the long run.
Short auto loan terms seem more expensive because monthly payments are bigger here when compared to monthly payments in longer terms. But if you compute for the total loan amount you would pay after, say, 48 months, you will find out that you paid just right for your car. A long loan term can cause you to overpay.
3) Dole out more money for the down payment.
The ideal down payment is 20%. But making a bigger down payment can reduce your interest rate. Doing so also proves lenders that you are financially capable of paying off the auto loan.
Aside from lowering your interest rate, a bigger down payment reduces the monthly payment and makes it easier for you to pay the principal. It might seem expensive at first but it actually helps you keep more money in the long run.
4) Apply with a cosigner.
A cosigner must have better credit than the primary borrower. He or she can be anyone you trust—close friend, family member, or relative.
With a cosigner, your chances of getting approved for an auto loan are higher and your interest rate can be lower. You also become less risky for lenders.
5) Groom your credit.
Your credit has the greatest impact on your auto loan interest rate. Before you apply for a car loan, find out first if your credit needs fixing.
Get a copy of your credit report. If it shows negative information, you will need to fix your credit first before applying for a car loan. Otherwise, you would get a high interest rate. Remember that you are most likely to snag a great auto loan deal when you have an impressive credit.