6 Proven Ways To Get The Lowest Interest Rate On Your Car Loan
If you’re planning to buy a car, getting the lowest interest rate possible on your car loan can save you a lot of money in the long run. A low-interest rate can help to reduce your monthly payments and the overall cost of borrowing. In this article, we’ll discuss six proven ways to get the lowest interest rate on your car loan.
1. Check Your Credit Score
Before applying for a car loan, it’s important to check your credit score. Lenders use your credit score to determine your creditworthiness and the interest rate they’ll offer you. A good credit score can help you qualify for a lower interest rate.
You can check your credit score for free at websites like Credit Karma, Credit Sesame, or AnnualCreditReport.com. Make sure to review your credit report for any errors and dispute them with the credit bureau if necessary. You can also take steps to improve your credit score by paying bills on time, reducing your debt, and limiting new credit applications.
2. Shop Around For Rates
Don’t settle for the first interest rate that you’re offered. Shop around and compare interest rates from different lenders such as banks, credit unions, and online lenders. You may also want to use comparison websites to help you find the best deals.
When shopping for an auto loan, ask for quotes from multiple lenders and compare the annual percentage rate (APR), loan term, and fees. Keep in mind that some lenders may offer lower interest rates but charge higher fees, while others may charge no fees but have higher interest rates.
3. Consider A Shorter Loan Term
Choosing a shorter loan term can sometimes result in a lower interest rate. This is because the lender is taking less risk by loaning you money for a shorter period of time. Although your monthly payments may be higher, you’ll pay less interest overall.
For example, if you finance a $20,000 car at 6% interest for 36 months, your monthly payment would be $611 and the total interest paid would be $1,996. However, if you finance the same car for 48 months, your monthly payment would be $467 but the total interest paid would be $2,903.
4. Put More Money Down
If you have the funds available, consider making a larger down payment. Putting more money down can make your loan less risky for the lender, which could lead to a lower interest rate.
A larger down payment also means that you’ll need to borrow less money, which can help reduce your monthly payments and the overall cost of borrowing. Aim to put down at least 20% of the car’s purchase price if possible.
5. Improve Your Debt-to-Income Ratio
Your debt-to-income ratio is an important factor that lenders consider when deciding whether or not to approve you for a loan. The lower your debt-to-income ratio, the better your chances of getting a lower interest rate.
Your debt-to-income ratio is calculated by dividing your monthly debt payments by your gross monthly income. If your debt-to-income ratio is high, you may want to pay off existing debts or increase your income before applying for a car loan.
6. Consider Refinancing
If you already have a car loan with a high-interest rate, consider refinancing it after a year or so of timely payments. This could help you get a lower interest rate and save money over the life of your loan.
To refinance a car loan, you’ll need to apply for a new loan with a different lender and use the proceeds to pay off your existing loan. Make sure to compare interest rates, fees, and terms from multiple lenders to find the best deal. Keep in mind that refinancing may extend the term of your loan and increase the total interest paid.
Conclusion
By following these six proven ways to get the lowest interest rate on your car loan, you can potentially save thousands of dollars over time. Remember to check your credit score, shop around for rates, consider a shorter loan term, put more money down, improve your debt-to-income ratio, and consider refinancing if necessary.