With the rising cost of gas prices these days, everyone is trying to find ways to save money on many of the things they need. For most people, a car is a necessity and while they can try their best to find lower gas prices to save a few bucks here and there, another way they can save money is on their car loan. While reducing the cost of your car loan may not be the first place you look to save money, you can do just that, if you do it the right way.
Learn how to reduce the cost of your car loan by following these tips:
1. Improve Your Credit
Your current car loan is based solely on your credit score. If you’re one of the few people who has perfect credit, than this is something that doesn’t apply to you because you already got the best deal possible; however, if you don’t have the best credit, you end up paying more for your car loan simply because of your questionable payment history. If your current credit score isn’t the greatest and you don’t need to purchase a car at this exact moment, consider waiting a few months until your credit score improves. Even the smallest increase can save you a lot of money.
2. Borrow Just Enough
If you only need a few thousands dollars, consider saving your money as opposed to taking out a loan. Small loans can be paid off a lot faster than bigger loans, which is why small loans have higher interest rates than larger loans. This is so that the banks can make a profit; however, you can control just how much they make off you if you pay it back quick enough. If you need to borrow money, borrow a max of $5,000, anything less than this should be money you have saved and that you put towards the down payment of the car.
Since mortgage rates have dropped significantly over the past couple of years, many people decided to refinance their homes. However, you can also refinance your car loan. Not only does refinancing your car loan lower your monthly payment, but it also significantly reduces the mount of interest you owe, which enables you to pay it off quicker. Just how much money can you save? An example would be if you took out a 60-month loan for $16,500 at an interest rate of 21 percent. This loan would end up costing you $446 per month and you would be stuck with paying over $10,000 in interest alone.
On the other hand, if you were to refinance the car loan and obtain an interest rate of 7 percent, your monthly payment would drop to $330 and you would only pay a little of $3,000 in interest. I don’t know about you, but an extra $116 can come in handy for gas, especially since gas prices continue to rise as we speak.
It’s really pretty funny when you think about it. People go online and clip coupons to save money on just about everything under the sun; however, when it comes to cars and car loans, most people take the first car loan offered to them. Maybe it’s the adrenaline rush of being overly excited about owning a new car, but if consumers were a little more careful with their money when it comes to purchasing vehicles, there wouldn’t be so many people having cars they can’t afford. This is why it is imperative to cover all your bases when it comes to purchasing a car and obtaining a car loan.
4. Shop Round
Just because the car dealership offers you a loan, doesn’t mean you have to take it. Like in many aspects of business, the dealership plays the middleman and they are making a profit for their work–meaning you probably won’t get the best deal if you obtain a loan through them. While you should still receive a quote from them, it doesn’t mean you need to accept it. You probably spent time shopping around for a car–do the same for the loan.
5. Consider Leasing
If you’re in a bind and you need a car, but can’t afford a big down payment, leasing a car is a viable option. Why? Well, when you consider having to take the bus everywhere, the cost adds up. Why not spend the money on something you can have all to yourself. No more waking up two hours earlier, just to take three buses to get to where you need to be on time.
Leasing also come in handy if you like to change up your ride every so often. After a couple of years, you can drive something new. Plus, you won’t have to worry about the cost of repairs. Another benefit of leasing a car is that you don’t incur the cost of depreciation.
6. Consider More Economical Options
Of course, most of us would prefer to drive around in a Mercedes. Who wouldn’t? But who can afford it? Instead, consider alternative models that have the same physical attributes, but are a lot less expensive.
You should also consider whether you need to purchase a new car. Is this really necessary? Maybe if you do a lot of traveling for your work, it may be, but if you only need a car to get to and from work and a few places in between, than you really don’t need to waste money on a brand new car. Besides, remember that cars begin losing their value once you drive them off the lot.
There are many practical ways you can save money on your car payments. If you take the time to explore your options, you’ll be in a much better place and make a more economically sound decision on your car purchase, which can save you a lot of money on your car loan.