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More than 75 percent of drivers in the United States use car loans to purchase their vehicles. While borrowing money makes it easier to afford a vehicle, it also adds to the car’s overall price. Follow these four secret tips so you can save on your next car loan.
Lenders use credit scores to determine how much interest they should charge borrowers. The lower your credit score is, the more interest you will pay when you borrow money.
Improving your credit score before you apply for a loan makes it easier for you to get a lower interest rate.
Repaying high-interest credit card debt is the fastest way to improve your credit rating. Devote as much money as possible to paying off your credit card balance so you can qualify for a lower interest rate on your car loan.
When you purchase a vehicle, you should expect to pay at least 20 percent of the cost up front. It’s even better if you can make a larger down payment.
A large down payment does two things:
Devote as much money as you can afford to your down payment. Doing so will help you save cash in the long run.
Some car dealerships try to make more money by tempting buyers to take long-term loans that last five or six years.
Spreading the payments out over six years will make your monthly payments cheaper, but it will also increase the vehicle’s overall cost by forcing you to spend more money on interest. If you use a six-year, $15,000 loan with a 5 percent interest rate, you’ll spend $1,984 on interest. If you get the same loan with a three-year term, though, you’ll pay $1,184 in interest, saving you $800.
When you opt for the shortest term that you can afford, you’ll keep your monthly payments reasonable while avoiding excess interest.
Don’t rely on one source for your car loan. Banks, credit unions, dealerships and other lenders have to compete against each other to win your business. When you get quotes from several institutions, you have an opportunity to choose the one that benefits you best.
Having multiple quotes also gives you some leverage when negotiating for a lower rate. If one institution offers you a 3 percent rate, then you can use that as a bargaining chip when talking to other lenders.
It’s best to buy vehicles with cash. Since that’s impossible for most people, you should do everything possible to save on your car loan.