Although cars are expensive, fortunately, there are many ways to finance them. One of car buyers’ most widely used options is auto loans, where financial institutions offer borrowers money to purchase a new or used car. Depending on their contract, the borrower pays monthly payments for two to seven years until the debt is zero. In addition to the cost of the car, they will also pay interest.

So, how do lenders determine your monthly payment and interest rate? They look into your credit history and other variables, including market conditions.

Today, we’ll share five practical tips to get the best loan rate. And if that’s too much of a hassle, you can explore the best car loans to cut the cost of your purchase and get the most favorable terms. Do you want to take matters into your hands? Let’s dive in!

Check And Improve Your Credit Score

Analyzing your credit history is the initial stage in this process. Your credit score is one of the main determinants of your vehicle loan rate. Higher scores imply lower rates and vice versa. According to credit bureaus’ data, average rates for excellent credit are around 3.85%, while average rates for borrowers with low credit are 12.94%.

Online credit score checks are available, and your bank or credit card company can even send you a free monthly update. You should also check your credit reports from a central credit agency, such as Equifax, TransUnion, or Experian, if you’d want a more in-depth look at your credit status.

There are many strategies to raise your credit score, and your credit report can outline them for you, but the following best practices can guide your decision-making:

• Pay your bills on time and catch up on any past-due payments.
• Square any collection accounts you might have.
• Reduce your credit utilization rate by working to pay off your credit card debt.
• Do not open more credit accounts.

Compare the Lenders

Comparative shopping is essential. It’s doubtful that the first person you speak with would offer you the best rate. Therefore, it will be easier to select a loan that suits your needs if you have access to three to five quotations.

When comparing the best auto loan choices from several lenders, choose the one with the lowest APR and the shortest loan period you can handle. That loan will end up costing you the least money overall.

Consider a Larger Down Payment

How much you borrow is one of several aspects that lenders take into account when deciding vehicle loan rates. Even if you go for a used car. Higher monthly payments result from a more considerable loan amount. As a result, if you put more money down on the purchase, you can be liable for a lower interest rate.

Let’s take an example where the sales price of the car you want to buy is $32,000, and you’re thinking about a 70-month repayment period.

If you put down $10,000, you might be eligible for a loan with an interest rate of 3.49% and a monthly payment of $382.75. Instead, if you put down $5,000, the lender might give you a loan at 3.74% APR, resulting in a $494.49 monthly payment.

The difference is almost $90 a month, so if you can handle it, putting down a larger down payment will pay off in the long term.

Adding a Cosigner

If your credit isn’t in the best condition, getting a cosigner who has good credit could help you get a better rate. Cosigners allow you to borrow their credit score when you ask them to cosign your loan application to get a reduced interest rate.

But, if you can’t make your payments, your cosigner will be held accountable for your debt, and their credit score will suffer as a result. So, getting someone to sign this deal might not be straightforward; you really need someone who trusts you with their finances.

Go For a Shorter Loan Term

Your monthly payment dramatically depends on how long your loan will last. Most loan terms last from 2 to 7 years. So usually, you’ll pay lower monthly payments on longer contracts. And vice versa; you will pay higher monthly payments on shorter contracts.  

However, there’s a catch!

Unfortunately, your interest rates increase with the length of your loan, meaning 72- or 84-month loans might imply lower monthly payments, but you will primarily pay the interest and not the principal amount. So, even though a reduced payment may tempt you as the most affordable, especially if your budget is low, you should carefully review the terms before signing.

Sometimes professionals advise 48 or 60-month loans. Usually, they maintain a compromise between reasonable periods and manageable payments. Also, you can pay it off earlier to build equity. In this way, if you decide to sell it, the value of the car won’t be lowered by an unpaid amount.

Conclusion

It may take some time to qualify for the best auto loan rates, particularly if you’ve had credit problems in the past. Yet, it will be worthwhile to avoid paying hundreds or even thousands of dollars in interest.

Take the time to follow these tips if you plan to purchase a car soon to increase your chances of obtaining a cheap interest rate. Of course, if your situation is urgent, you might not have enough time to do everything, but at least try to utilize one of the proposed tactics. We assure you if you do it properly, it will work!

Also, Read – Leasing Vs. Buying From The Toyota Dealer: Which Is Right For You?