Lenders are ultimately responsible for determining interest rates, but you can still take some steps if you would like to get the best auto loan rates. Your credit rating is of great importance. If it is particularly bad, you should wait for a year or a couple of years before you take a car loan to fix this problem. Having a bad credit score can prevent you from getting the best rates. Besides improving your credit rating, you should try the following five tips to get the best rate possible.
1. Opting for a Short Loan
The shorter your loan repayment period, the lower your interest rate will be. With short loans, default is less likely, and lenders can reward this with lower rates. Lenders also never have to worry about inflation cutting into the earnings. This means that they can reduce your rate further. Most car loans are available in 3, 5, and 7-year terms. If you opt for the 3-year option, you could potentially save thousands of dollars regarding interest rate payments. (We recommend you check out My Personal Loans Reviews – Zippy to read the review before applying for a short loan)
2. Placing a Large Down Payment
You will enjoy two benefits if you place a large down payment. First, it will lower the overall size of the loan. For instance, if you plan to buy a $15,000 vehicle and have a $5,000 down payment, you will only be financing $10,000. If you place $7,500 instead, you will only be financing $7,500. Smaller loans are easily paid off faster thus reducing the interest rate. Second, in the first scenario, you will be financing 75 percent of the cost of the loan. In the second scenario, you will only be financing 50 percent. If you place this large collateral on your loan, you will be lowering the risk on loan thus lowering the cost.
3. New Vs Used Car
New car loan rates are better than used car rates. Typically, only new cars qualify for zero percent financing even though some car manufacturers push certified pre-owned vehicles with zero percent offers on occasion. The older a vehicle is, the higher the interest rate typically is.
4. Shopping Around
Different lenders quote different rates. You will enjoy a larger difference in rates when you get a quote from a dealer finance company versus a bank. Dealers have the incentive to offer lower rates since they want to make a sale. However, they are likely to make up the cost on the back end since they will charge extra if you wish to refinance in the future or repay the loan early. Banks make the tasks more affordable, but they have less incentive to offer low rates. Shop around and compare the different auto loan features to determine the option that best fits your needs.
5. Getting Creative
If you would like to reduce financing costs, you should consider changing the loan terms. Loan length and down payment are just two important terms on loan. You can also consider adding a cosigner, adding additional collateral, or changing your insurance requirements. It is important to balance the interest rates with the other options. It is never a good idea to go for the best interest alone without considering the financing costs. However, you can reduce your rate by leveraging your financing terms and still have an affordable rate easy to pay off in the future.
Financing your new car purchase is a necessity for many car owners, but you never have to pay an arm and a leg. To ensure that you get the best auto loan rate available, you should start with the five tips discussed here. You should also work towards improving your credit score and history before asking for a new loan.
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