When searching for a car, the initial step is calculating how much money you require. With that amount in hand, you can estimate how much a loan will cost you.
Your monthly loan payment will be determined by the cost of the car, down payment amount and length of loan (term). Furthermore, interest rate affects total payments as well.
Interest Rates
Car loan interest rates differ by lender, credit score and term. By understanding the average auto loan interest rates by credit score you can identify which lenders provide the most competitive deals for your specific situation and vehicle purchase.
For instance, credit unions often provide lower interest rates to members than nonmembers due to their established relationship with members. Other lenders may not have this kind of relationship and thus cannot match these lenders’ rates.
However, the best way to save on a car loan is to get pre-approved before shopping around. Doing this can reduce the number of lenders you visit and guarantee you’re getting an advantageous rate.
Consider car loan refinancing to save you money on interest over the life of your loan. However, keep in mind that your credit score is one major factor in determining your interest rate and could impact what terms are offered when refinancing.
Down Payment
A down payment is the initial sum of money you invest when financing a car. It can be paid in cash, through trading in your old vehicle, or both.
Your down payment amount and credit score are two important factors when it comes to determining loan rates and monthly payments. Lenders use these amounts, along with other factors, in calculating these figures.
Making a larger down payment on your car loan can result in substantial cost-savings over the course of its ownership. Not only does this reduce interest payments, it also offsets depreciation effects and lowers your monthly payment accordingly.
Payment Term
When purchasing a vehicle, the payment term required to repay your loan is an important factor to consider – not only because it affects your monthly payments but also impacts the total cost of ownership – including both interest and principal.
A longer loan term offers lower monthly payments, but may result in higher total interest. It’s worth considering whether stretching out the term makes financial sense for your individual situation.
In most cases, it’s best to choose a loan term that matches your vehicle purchase and fits within budget. A car loan calculator can assist in finding the ideal loan term by plugging in values for loan amount, trade-in amount, down payment amount, interest rate and credit score. Doing this gives an estimate of what your monthly payment will be.
Payment Options
Financing your car or buying it with cash are two payment options to consider. Which option you select should depend on your individual budget and financial situation.
If you’re having difficulty making your payments, a loan refinance could be the solution. This can help lower your monthly payments and interest rate while still keeping your car.
Before anything else, reach out to your lender. They can advise you on any payment options that might be available for you.
Another alternative is to request a payment extension. This will enable you to extend your loan term by several months.
The disadvantage of requesting a payment extension is that you’ll still need to make your regular monthly payments and the interest charged may increase. Be sure to read all details thoroughly before requesting one.
