Maximize Your Savings: Top Tips from Experts on Car Loan Strategies
Many people can’t afford to buy a new or used car outright and need to take out a car loan, which often involves paying interest over time and making a sizable down payment. However, there are ways to reduce the overall cost of a car loan through creative solutions and careful planning.
Experts offer several tips on how to save money on a car loan and whether it’s worth waiting for better interest rates.
**Consider Longer Loan Terms to Save on Monthly Payments**
If you’re looking to lower your monthly payments, extending your loan term from 48 months to 60 or 72 months can help. While this means you’ll pay more in interest over time, it can be worth it if you can afford the monthly payments and plan to keep the car for many years.
**Consider Shorter Loan Terms to Save on Interest**
If your goal is to save on interest, opting for a shorter loan term might be better. This requires higher monthly payments, so it’s important to ensure it fits within your budget.
**Refinance Your Current Auto Loan**
If interest rates have dropped since you took out your loan, refinancing can lower your monthly payments and save you money on total interest charges. However, check your existing loan contract for any prepayment penalties. Weigh the benefits of refinancing against any associated fees to ensure it’s a financially beneficial move.
**Make a Larger Down Payment**
Putting down 20% or more, rather than the minimum 5%, can save you on total interest paid over the loan. A significant down payment may also help you secure a lower interest rate, as it reduces the lender’s risk. If you can’t pay a larger amount upfront, consider using savings, rewards credit cards, or a personal loan.
**Negotiate the Car Purchase Price Before Financing**
When at the dealership, be prepared to negotiate the car’s purchase price. Dealers often include their profit margin in the interest rate quoted after purchase discussions. By negotiating a lower sale price first, you’ll need a smaller loan and have lower payments.
**Pay More Than the Minimum Due Each Month**
Adding even an extra $25 or $50 toward the principal with each payment can shorten the loan length and save on interest charges. Seeing the balance decrease faster can also motivate you to continue making higher payments and eliminate the loan sooner.
**Improve Your Credit Score**
Boosting your credit score before applying for a car loan can help you secure lower interest rates. Reducing your current debt is one of the most effective ways to improve your credit score. If you don’t have time to boost your score, shop around for loan servicers to ensure you’re getting the fairest rate for your loan.