When you buy a used car, you can save money, but you still need to take out a loan. Some auto loans are better than others and here are some helpful tips for saving money on your financing.
Check Your Credit Score First
Before you think about car shopping, take a look at your credit record. It’s not hard to ask for reports from the three major agencies, and it doesn’t cost you anything. In fact, you can get a free copy every year. Why is this important? Your credit record has a lot to do with the amount of loan interest you pay and here is why.
When lenders loan you money, they take risks. Naturally, the lower credit risk you are, the lower interest you’ll have to pay on auto loans.
Loan Shopping
You don’t have to accept the first loan offer you get. In fact, when you check out lenders you might find a big difference in interest rates. It’s easy to apply for loans online, and you’ll get a fast decision this way. If your credit is poor or questionable, consider a dealer with guaranteed financing. This is a good option to consider.
Terms
Did you know that higher interest auto loans are sometimes cheaper than lower interest loans? It has to do with getting the right terms. Here is an example. Suppose you finance $20,000 for a beautiful late-model SUV. You find a five-year loan at four percent interest. Your monthly payments are $369, and you’ll pay a total of $2100 in interest.
Now suppose you finance for three years at five percent interest. Your monthly payments are about $590, but you only pay about $1300 interest. That’s an $800 savings over the life of the loan. In reality, you might get a lower rate for the shorter loan and save even more money.