Knowing where to go to get cheap car loans requires a lot of research and preparation. Before you can start talking to a dealership for the car you’re interested in, you need to check your credit score, research loan options, and do a bunch of other due dilligence.
It’s a lot of work, and you may have financial trouble if you don’t know what you’re doing. But that doesn’t mean you can’t be well-equipped with knowledge. This article will help you find cheap car loans and save thousands of dollars over the loan term.
How to Find the Cheapest Car Loans for You
To find a good deal out there, these are the steps you need to take:
Know your financial situation and credit score
Before you consider getting a loan, you need to consider your finances and creditworthiness. Your credit score directly influences the interest rates you will be offered.
If you have excellent credit, you can expect the lowest possible interest rates. If you don’t have a good credit score, you’ll pay more interest. If you check and your credit score isn’t good, it’s best to wait until your score goes up before you get the loan to purchase your car.
Raising your credit score isn’t an instantaneous process – it will take time to reflect. However, these are some methods you can do to increase your credit score:
- Pay off existing debts to reduce your credit utilization ratio.
- Make timely payments on all debts.
- Avoid applying for other types of loans and credit cards.
- Dispute any inaccuracies on your credit report.
If your credit report contains discrepancies, you must file a dispute with the appropriate credit reporting agency immediately. You don’t want errors that can increase your loan rate.
Compare loan options
Next, you need to compare the rates and terms from different lenders. The goal for this is to find out the option with the most compatibility with your financial and living situations.
Obviously, the first thing you’d want to ensure is the interest rates. Additionally, you need to also pay attention to the restrictions and terms that a lender may have.
Some loans are restricted to certain car makes and models, while some other only applies to cars with a specific age or mileage range. Check these restrictions and make sure they don’t apply to you. Don’t forget to expand your search to banks and credit unions.
After getting a list of suitable lenders, the next thing you should do is get a pre-approval. To do this, you need to send in your personal and financial information to prospective lenders and wait for their offer letter. This letter shows the preapproved amount and rate, which gives an estimate of your monthly payment.
You can even take this letter to a dealership as leverage for the dealer to give you a good loan offer.
Consider loan terms and down payment
The terms of your loan and the down payment you make decide how much you will pay monthly. This amount usually includes the interest you need to pay throughout the life of the loan.
Typically, the loan period ranges from 24 to 36, 48 to 60, 72, and 84 months.
Ideally, you should go for either 36 to 60 months as these periods balance the interest rate and monthly payment fairly nicely. But the general rule of thumb is if you can afford the payment for a shorter load period, you should.
Keep in mind that a longer term means lower interest rates, and everyone often falls for that. But in the long run, you’ll find that you end up paying way more interest than you would in a shorter term loan.
Down payments also affects how much loan you need to take and how much interest you get to pay. The more you can pay upfront, the less the interest you pay and the cheaper your car loan will be.
Calculate the total loan costs
Before taking any loan, it’s better to do the math. You need to consider the down payment, the length of your loan term, and perhaps the trade-in value of your previous car (if you have any).
There are several online loan calculators and websites that help significantly here. They can estimate monthly payments and compare total loan expenses across different offers.
This will help you see beyond the ecstasy of getting a new car, and into the longer-term value of the load you’re taking. If it turns out the car will depreciate a lot when it’s paid off, that means you’ll lose more money in it.
As a side note, some car brands retain their value for longer compared to others. Ford is one of these brands – and if you haven’t decided on a car yet, you should definitely check out some used Ford models.
If that’s the case, you can check if the Ford you’re eyeing has any record or title standing out using this free Ford VIN decoder.
Factors Affecting Monthly Car Loan Payments
As previously mentioned, there are some major factors that you must remember to put into consideration while searching for a loan. These factors greatly influences the total car loan costs you need to worry about.
The major factors affecting car loan costs are:
Vehicle purchase price
The cost of the vehicle you are interested in directly affects your monthly payments. By purchase price, you shouldn’t just think of the MSRP but also the taxes, registration costs, fees, etc.
This total significantly affects the monthly payments. Let’s say you were interested in financing a $50,000 vehicle at 8% over a 60-month term; you would be looking at a payment of $1,013 per month. However, if you wanted a car worth $30,000 under the same terms, your monthly payment would be $608/month.
Interest rates or APR
Another factor to consider is the interest rate. The interest rate or annual percentage rate (APR) is how much the lender will charge for borrowing money. It shows how much you will pay back annually and is paid monthly.
A lower interest rate means less interest is added to the principal amount, reducing monthly payments. These rates vary based on your credit score, the lender, and the type of loan, so you need to do a lot of research before choosing a lender.
Impact of down payment and trade-in value
A down payment is the amount of money you put down against purchasing the vehicle. This reduces the total loan amount needed which means you end up paying less monthly. The more you put down, the lower your monthly payment gets.
If you want the best rates and lower monthly payments, consider putting down the highest amount as a down payment. You can also trade in your former car to reduce the loan amount.
Term of the loan
Ideally, it is suggested that you stick with a loan term between 36 and 60 months, as this makes a big difference in your monthly car loan.
Let us take the above example. You can finance $50,000 for a car and take a loan at 8% on a 60-month term; you would have $1,013 for monthly payments. That means should one select to pay for the term 48 months, he or she pays $1,220 per month, and 72 months makes it even more affordable at $876 per month.
Be sure of the vehicle before taking a loan
Before finalizing a purchase and taking a loan, use tools like the Ford VIN Lookup to ensure transparency in the vehicle’s history. You don’t want to sign up for an auto loan only to find hidden damages in your vehicle afterward.
Properly inspect the vehicle and do extensive research before choosing a lender and taking a loan. By following these steps and best practices, you can secure the cheapest car loan and ensure a healthier financial future.
