Auto loans can be useful in that they can help you receive a reliable vehicle without the huge out of pocket expense. However, the amount you have to pay to repay the car loan may make it an expensive option. By adopting these strategies before and after you receive your auto loan, you'll be able to save significantly.
Check Your Credit Histories Before Applying
It's imperative that you understand what is in each of your three credit reports because this is the information lenders will use to determine whether you are an acceptable risk. In addition, if you fail to check your reports and they contain inaccurate information it may lead to you paying more than you expected for the loan.
Shop Around for Rates
When finding the best place to finance your new set of wheels, it might be tempting to go to the dealership, since they can cast a huge net by asking multiple lenders quickly. While this is enticing, it shouldn't be your only option. If you have a great relationship with your local bank or credit union, always consider them first, as they might be able to offer you better rates. The goal here is to go to the dealership with another offer already in place, that way you can use it to negotiate the best rate for you.
Make a Large Down Payment
The goal in paying less in auto loans is to borrow the least amount you possibly can. This means you should set a savings goal of at least 20% of the vehicle's purchase price. While this is an ambitious goal it accomplishes two things: One, you won't have to pay as much in interest over the life of the loan and two, if you buy new, you can offset the depreciation value of your new vehicle.
Consider a Co-signer
If you don't have an established credit history or if you have had credit problems in the past, you may still qualify for an auto loan. The problem is you may receive a higher interest rate due to your credit. To offset this, you should consider a co-signer. By asking a trusted friend or relative with excellent credit to co-sign for you, you can receive the loan you want with a lower interest rate. In turn, you'll save money over the life of the loan in interest charges and it gives you the ability to pay off the loan quicker.
Pay Off the Loan Quickly
Once you receive your loan approval, it's important for you to devise a plan to pay it off as quickly as you can. Instead of opting to make just the minimum payment every month, set aside extra cash you can use to pay down the loan quickly. Even something small such as an extra $25 to $50 monthly will help you pay down the loan quicker. Over time, this can reduce the amount of payments you'll make on the loan and help you save money in interest charges.