Buying a new or used car often involves financing the purchase. The terms of your auto loan affect the monthly payment. Take steps to ensure you receive the best rate and terms on your next purchase by employing a few effective car loan tips.
Auto lenders work with different types of buyers, and having a low credit score won’t necessarily prevent an auto loan approval. However, bad credit does result in higher finance fees and a higher monthly payment. Getting the car that you want and a price you can afford may involve getting the best interest rate on the loan. The higher your credit score when applying for the auto loan, the lower the interest rate on the loan. Aim high and attempt to achieve a score 700 or high to receive a favorable rate. Paying down debt and timely payments contribute to a higher credit rating.
Many car loans extend up to 60 months. Extending the car loan term helps lower payments. But if looking to pay off the loan quicker and possibly receive a lower interest rate, select a shorter loan term such as three or four years. Based on your interest rate, auto lenders can quote the monthly payment on a reduced loan term. Review the numbers and check your finances to determine affordability.
Auto loan lenders do not require down payments. Benefits to buying a car with a down payment include the ability to negotiate a better interest rate on the loan. Plus, down payments reduce the amount you need to finance, which also lowers your monthly payment. There’s no required minimum for a down payment, but plan to put at least 10 percent down on the purchase.
Car loans vary, as does the interest rate on a car loan. Shopping around for the best rate on your next auto loan purchase can save money during the course of the loan. Dealerships have a finance department, and they’ll work with you to find an auto loan. While it’s useful to explore the dealership’s finance options, it also helps to look for your own financing and make comparisons. Take the dealership’s offer and then contact a couple banks in your area for a free auto loan quote. Review quotes and pay attention to the interest rate, loan term and monthly payment. Choose the finance package that offers the best terms and the lowest rate and payment.