Car Loan Interest Rate:
How to Get the Cheapest Rate and Pull It down Even More!
When loaning a car, the main concern of most people is on the car loan interest rate. Everyone dreams of having a brand new car. Unless you have a lot of cash to buy it in full cash, the best thing to do is to pay for it in a longer period of time. That is if you want to materialize that dream as soon as possible. But the question is- where can you get a car loan which has the cheapest interest rate? Or, how can you make a relatively high interest go down?
You can almost imagine sliding into the front seat and feeling the comfort of a beautiful car. Lavish, luxurious, and cozy- you think of driving it and you wonder how people will look at you once they see you in such a lovely vehicle. Inside, you have stylish compartments, a GPS tracking device, radio and MP3 system. You also have a portable television. As you drive your way out of town, you can just turn on your favorite sound track and feel the rhythm of a smooth ride. Well, before you can experience all these pleasures, you must first figure out how you are going to pay for your car.
Supposed you already found a financing company to provide you with a car loan. Now what? There are times that car loans that have higher interest rates turn out to be cheaper than those who have low rates. Believe it or not, this is true. This is just one of so many tricks that most lending companies do to get more clients. That is why it is very important that you carefully study how you are being charged for your car loan interest rate. You want to know the terms of payment, the amount you're going to pay during the entire payment period and how much exactly is the charge on top of the original price of the vehicle.
Calculating the total interest paid on car loans
Sometimes, it is better to do some arithmetic before considering any car loan. This is for you to gauge whether you're making the right decision and you're choosing the most suitable deal for you. In calculating the total interest that you will pay, you need to determine the principal amount of the car loan. The principal amount is the actual amount which the lending company will finance. Most of the time, car dealers add hidden fees or what they call undercoating charges. So it is always advisable to read even the smallest print on the contract to make sure you know what exactly you are paying for.
You may also want to discuss it with the dealer because sometimes, they will include such charges on the principal amount and not on the price sheet. Beware of this!
You also need to determine the payment terms. Will you have to pay every month? Would it be every two months? Or does it have to be every quarter? The car dealer should provide you with such information beforehand. After that, you also want to know until when you will pay. Is the loan payable for 3, 5, or 7 years? Usually, the longer the payment term, the more expensive the car loan becomes. You will be offered with the payment options. You may want to choose a shorter payment period to lower down the rate.
Compute for your total payment. Once you know all these things, you can easily compute for the actual number of payments you need to make to pay off the car loan. For example, the term is for 5 years and you are asked to pay every month. So in that span of time, the number of actual payments will total to 60. If the principal amount of the car loan is say- $30,000 and the car loan interest rate is 8.9%, you will be paying $621.3 per month. In the end, the total amount that you will pay is $37,278. Well, that is just for the actual loan. You still have to pay for some extras like the advertising and application fees, hidden charges, add-ons, etc.
Pulling down your car loan interest rate
But didn't we say that the shorter the payment period is, the more you can save? Let's take a look if that really is the case. Using the same example- $30,000 as the principal loan and 8.9% interest rate, let's pull down the period to 2 years. Expect that the monthly fee will rise. So instead of paying $621.3 every month, you will be paying $ 1,377.44. That looks overwhelming but if you're going to compute for the sum total of your payment, it will only amount to $33,585.6! This is one way to pull down your car loan interest rate.
The rule of thumb in car financing is the less you borrow, the lower your monthly payments are. Moreover, if you are borrowing less, you also get a greater chance of having your loan request approved. Well, if you have a good credit score, this will not matter.
Choosing the Car that Fits your Needs
It always helps to choose the car model which is suitable to your needs and of course- your budget. You don't want to get problematic looking for the cash to pay for your monthly dues. Don't buy a Ferrari if you don't think that suits your lifestyle or if you still have children to support and things to spend for. Basically, less expensive cars would mean less expensive loans. Well, it seems like the dream cars of most people are those that cost millions! But, you can actually look for a beautiful car that will give you satisfaction without having to cost you tens of thousands. Another thing is that a lower loan guarantees lower interest rate.
Determining your paying abilities
You may also want to know your credit score. There are plenty of credit agencies that provide credit history reports. Before you call any car loan lender, you want to be certain that you are capable of paying your bills on time. It will also place you in much better position to negotiate with the lender.
Aside from choosing a shorter payment period, you can pull down the car loan interest rate by saving some cash for the down payment. Another principle in car loans is that the bigger your down payment is, the lower your monthly dues will be. If you will purchase a much cheaper car, you'll never have problems saving for the down payment. You also want to negotiate well with the lender. Don't settle with the first offer. For sure, they have better deals reserved. Give them the impression that you know a lot of things about car loan industry. This will push them to give you more favorable car loan offers.
It's never impossible to buy a brand new car without losing all your savings. You just have to be clever at times especially in making decisions. Be wise all through the process- from selecting the car to choosing the lender to settling your payment options. There is no high car loan interest rate for a wise and educated customer!