Finding the Best Auto Loan Rate
Useful advice on taking out an auto loan
Electric windows, power steering and central locking are all pretty important, but you should also be looking out for the best auto loan rate, not just the newest and coolest features. Of course, it’s better to pay the full cost of your vehicle straight away, or to get an interest-free credit deal. But for many people, those options are not available. If you have to take out an auto loan, here is some useful advice.
Budget first. Some people decide to find the car they need and then sort out the finance later. But if you have no idea of how much you should be spending, it’s easy to let a pushy salesperson talk you into spending more than you can comfortably afford. There’s also the risk of setting your heart on one model, only to find that it’s very expensive. Then it’s easy to succumb to temptation and overstretch yourself financially. So have a figure in mind before you set foot on the forecourt.
1. Think about the total cost of the vehicle and the total cost of the loan, not about monthly repayments. Sales staff like to talk about monthly repayments because the figures are lower, so it sounds like you’re spending less money. But it’s crucial not to fall into this trap. You need to break down the finances carefully. When you’re comparing cars, compare their total sales price. When you’re comparing loans, work out the total amount you’d pay over the entire loan period. You’ll probably be surprised at the results of your calculations.
2. Don’t automatically go with the car dealer’s financing. They usually don’t offer the best auto loan rate. Don’t be pushed into accepting the dealer’s finance offer without comparing rates from other lenders first. If the dealer tells you that you have to accept their auto loan as a condition of purchasing the car, walk away. They wouldn’t be pushing that offer unless they hoped to make a lot of money out of you, so walk away.
3. Aim to pay off your loan in the shortest time possible. The longer you need to pay off the loan, the higher the auto loan rate will be. An extra twelve months could mean a whole extra percentage point on your loan rate. The best auto loan rates go to the people who can pay everything off sooner. So plan to get the repayments finished as soon as you can manage it.
4. Buy a used car rather than a new one. A new car starts to depreciate in value as soon as you drive it off the forecourt. If you’re paying a high auto loan rate on a new car, you might still be paying it off when the car has halved in value. In other words, you’re still paying real cash for a value the car just doesn’t have any more. The rate of depreciation slows down after the first couple of years, especially if you treat the car well. So get a car that’s at least two years old. You’ll enjoy a lower price, which means being able to negotiate a lower auto loan rate.