How to save money when you take out an auto loan

These are five ways to reduce interest rates and lower the cost of an automobile loan.

Borrow less – Less interest will accrue on your loan if you borrow less. This can be achieved by a trade in or a down payment, but there are many other options. You can negotiate a lower price, buy a used car instead of a brand new one, or choose a cheaper model.

You can get a shorter term – If you have a particular loan amount and an APR, a shorter term will result with a lower total interest cost than a longer term. A shorter term will also have a higher monthly cost. It’s worth looking at the benefits of interest savings over a payment that suits your budget.

Here’s an example. A $20,000 loan is offered to a car buyer at a 5 percent APR for 72 months. The monthly payment is $322, and the total interest cost is $3,000. The monthly payment can be shortened to $60 months. However, interest rates will drop to $2,646 and the monthly payment will rise to $377. This is a savings of $545 for the entire term.

Your credit score is an important factor in auto lending decisions. To increase your chances of approval, and to get a lower rate, particularly if you have poor credit, it is worth improving your score. Next Day Car Loans Canada recommends these steps to maintain and improve your score.

Examine your credit reports to identify and correct any errors.

Pay any missed or late credit payments promptly

Make regular payments

You can only use 30 percent of your credit limit

Only apply for credit that you really need

Pay early, or more – Most car loans are simple interest loans. Interest is calculated every day. This type of loan allows you to make extra payments or pay early. However, this will reduce the principal amount and interest. For example, you could set your payment to arrive before the due date. You could also make half of your monthly payments twice per month.

Refinance your loan. Another option is to refinance with another lender. If a customer is approved to refinance, the new lender will pay off any existing notes and offer a fresh loan with different terms such as a lower APR. This may be an option for you if you don’t get the best deal the first time, market rates have fallen or your credit rating has improved.

Where can I get financing?

You have two options for auto financing: directly from the lender or through a dealer.

Direct lenders – Dealers offer customers the convenience to get their car and finance at the same time. Dealerships may use third parties to fund the loan and may increase the APR to compensate them for their involvement. However, the contract is between the customer, dealer, and third party.

Direct lenders – This is an easy way to get financing. The customer can also visit the dealership before being approved. This may allow them to negotiate confidently and stay within their budget. NextDayCarLoans is an online lender that makes it easy to apply for a loan. They also provide instant approvals and access to a network of trusted dealers.

Make the right decision

When a financing offer is made, it’s easy for you to accept. Knowing how auto loans work will help you decide if it is right for you. The loan amount, APR, and length of the loan all have an impact on how much car you can afford.

Keep in mind that every person’s situation will be different. While saving interest may be your goal, lower monthly payments at the cost of higher overall costs might be more important to someone else. You can use auto loan calculators for an estimate of what might work for you and then apply online for a loan.