A car is not an investment. It is thus not a smart personal finance idea to pay interests on a car loan for a long time. What usually happens is that the value of the car depreciates faster than you repay the loan. By the time you finish, you will have paid almost double the car’s value. You need to come up with ways on how you can save on a car loan so that you don’t lose a lot of money at the end. Here is what we recommend.
Keep the Loan Term as Short as Possible
Any car dealer will negotiate with you based on how much you can afford to pay per month. They usually stretch the term of your loan so that the monthly payments become lower. Suddenly, a $500 payment becomes $200, yet you are not paying less for the car. Though this may seem convenient, you will end up paying more interests than when you choose a shorter period.
Get Rid of Unnecessary Costs
Some people struggle to pay down their auto loan balance faster because there are not willing to cut unnecessary costs. There are several expenses you can always ignore and use the freed money to repay the loan faster. You can always go without TV cables, spa sessions and gym subscriptions and channel the free cash towards the auto loan.
Review Your Credit Score
There are many financial institutions that will offer you cheap auto loan interest rates by credit score. Unlike credit cards and mortgages, you can get an auto loan with a bad credit score. The reason behind this is that it is much easier for the financier to repossess the car if you don’t repay the loan. Most people who have bad credit scores get excited by this exception to an extent they don’t research to see if there is a lower rate available. Car dealers know this, and they make a lot of money from it. There are several tools that can help you review and understand your credit score. You can then determine if you qualify for the best rates once you know your score.
Do Not Skip Any Payment
Many credit unions like to entice their clients to skip payments so that they can free up some funds for other financial commitments. It is a huge mistake to fall into this trap if you have an auto loan. You will have to pay at the end. The lender will simply extend the term and charge you extra fees.
Do Not Finance the Cost of Add-Ons
Dealers nowadays get a lot of profits from aftermarket add-ons. You should learn to say no to any add-ons because they will increase your loan amount. Most dealers will entice you to include the extended warranties and items such as fabric protection, paint sealants and insurance in the loan. These are things you can always buy separately at a lower price. Including them in your loan will only add hundreds of dollars to your monthly payments.
Financing is a good way to get a car without draining your bank account. The financing tips discussed above will make the process simpler and less risky.