Whether you want to refinance your current loan for a newer car or get a good deal on your first car, getting approved for low APR financing saves you money. The world of Auto Financing is tricky and a good deal goes beyond bargaining on the sticker price.
Luckily, there are some approaches that can help you save thousands over the course of your car loan. To help you achieve this here is how to get a lower interest rate on your next car.
Start by Building Your Credit
Credit scores and loans go hand in hand. High scores attract low APRs while low scores get you high rates, and depending on how low yours are, you may end up not qualifying for the financing. To know where you stand, start by reviewing your credit report. This you can get from the major bureaus, at no cost once every year.
If the report gives your score as being below the “good” range, below 670 in the FICO model, then you need to hold your loan application and build up the score first. There are however no quick fixes when it comes to building credit. Here are some pointers:
- Dispute and fix errors in your credit report
- Settle credit card debts
- Maintain timely monthly repayments on all loan facilities
- Only apply new lines of credit that you really need
- Pay your utility bills on time
Shop Around
Almost every bank and credit union offers auto financing. There are also independent and direct renders such as CarsDirect and RoadLoans, who offer instant financing. The industry is however not standardized hence rates differ from a few to as much as ten percentage points.
Get the best deals by starting your shopping online. Compare rates and terms, and feel free to call and haggle for better rates.
Pro tip: To outdo a dealer or financier during negotiations is not an easy task. Start by approaching a lender for loan prequalification that is within your means. Use that document to get other lenders to lower their APR.
Consider Refinancing
Refinancing involves having a new lender to offset your current loan for a new loan. This gives you the chance to haggle for lower rates and a shorter term. If done right, refinancing can see you save thousands of dollars, buy a new car from the surplus, pay off the loan quicker, and settle for affordable monthly payments.
Pro tip: To get a sense of the advantages of refinancing or what to expect, check the facility through online calculators.
Go for Shorter Loan Terms
Low monthly payments are some of the inducements that lenders use to make you borrow more. Such payments are made possible by having the loan stretched over a long repayment period.
Long terms, however, translate to high interest in an aging car. When on the negotiating table ask for a short loan term and calculate the total interest due; don’t be blinded by low monthly payments.
Read before Signing
“The devil is in the details.” This is a saying that no lender will use in front of you. The reason is, that it holds true in most financial and contractual agreements. Taking a loan is a huge commitment to your income and lifestyle. You should, therefore, be careful of what you sign.
It’s in the fine print that huge penalties and hidden charges can be hidden. It’s also possible for some good aspects of an oral agreement, such as low interest, to be voided in the legal jargon. With this in mind, read the agreement and if possible have a lawyer friend assist you in understanding important points.
Do not Finance Add-ons
One crafty way dealers use to increase interest rates is by including add-ons on the car loan. These could come in terms of new rims, leather interiors, audio upgrades, and so on.
When the dealer is explaining, add-ons will sound like “must-haves” with only a key detail missing- they will cost you far much more than they would if done in independent garages, after the sale.
The Takeaway
Getting low interest on a car loan requires due diligence on your part. It’s on you to ensure that your credit scores are above average. Learn about online platforms where you can compare, shop, and negotiate loan particulars. Lastly, be ready to shop around and bargain for better terms by arming yourself with everything you need to know; as outlined above.
