Car loans like mortgages are rather flexible. There are things you can do now to reduce the loan balance or monthly payments, and sometimes, both. There are also steps you can take to reduce the amount you pay over the life of the loan. Here are a few tips on how to save money on car loans.
Check Out Lenders You Know Won’t Penalize You for Your Situation
A good way to save money on your car loan is to identify lenders who won’t charge you a premium for having had bad credit in the past. Click here for additional details on auto loans for those with bad credit. If you’ve been out of bankruptcy for several years or being improving your financial situation, you’ll be offered a loan with favorable terms compared to what bigger financial institutions would offer you
Maximize Your Down Payment
Car lenders base their interest rate on the risk their taking when they loan you the money. One way to reduce their risk is to reduce their exposure. This is achieved by lowering the overall loan amount. If you can scrape together another five hundred dollars to put down on the loan, you could get a lower interest rate. Pay all of the associated closing costs in cash instead of rolling these costs into the car loan, and you won’t be charged a higher interest rate.
One tactic is to sell your old car for as much as possible in a private sale instead of trading it into the dealer. When you receive an extra few hundred or even thousands of dollars for the vehicle, you can use that to toward the purchase of a new car. If you’ve already bought the new vehicle before the old one sells, pay down the loan balance. You won’t save on the interest rate in this case, but you’ll reduce how much you pay in interest.
Don’t Take Up the Dealer’s Offer of Extras
Skip the extended warranty, because it always costs more than what you’d pay if you saved that money yourself for future car repairs. Don’t let them tack on detailing fees and other extras that inflate the final bill. All of these costs either cost you money up front you could use to pay down the loan or add to the total loan amount.
Don’t Skip a Payment
A new tactic by auto lenders to make more money off you is to offer a skipped payment. They aren’t giving you money for free, though it feels like a favor. In reality, that car payment is now delayed by a month, and interest has accrued for another month
Review the Contract before Signing
It isn’t uncommon for auto lenders and car sellers to pad the bill. Maybe they tack on dealer financing charges though you secured a car loan through someone else. Or they’re charging you a slightly higher interest rate than you discussed. Be very careful about letting someone offer you a car loan based on the car payment you can afford when it includes the extras. They could add another year to the car loan and thousands of dollars to the total bill because the extended warranty and maintenance agreement made the car payment sound too high.