How to Save on Car Loans

Looking for ways to reduce the expenses associated with buying and financing a new car? Use these effective strategies to save significant amounts of money on car loans.

Take Advantage of Home Equity

If you are a homeowner, you can use home equity loans as a more affordable alternative to traditional car loans. To have home equity, the outstanding balance of your mortgage loan must be lower than what your home is currently worth. Home equity loans are ideal for major expenses like new vehicles, and they come with extremely low interest rates. In most cases, the interest rates of home equity loans are lower than those of even the most competitive auto loans. Lower interest rates on your car loan will reduce your overall interest expense and bring down your monthly payment.

Work on Your Credit

You'd be surprised what a year of diligent improvement efforts can do for your credit score. Especially if you have credit challenges, you should seriously consider taking a few months or a year off to focus on your credit before looking for car loans. You can catch up on your payments and pay down your balances to bring your score up during this time. Once you do so, you will be able to qualify for much more competitive interest rates on easy loans.

Buy at the Right Time

Obviously, the cheaper your vehicle is, the cheaper your car loan will be. Given that fact, it usually pays off to buy your new car at the end of the month and at the end of the year. At these times, dealerships and salespeople are desperate to meet monthly and year-end quotas, so they are more inclined to give you a bargain. You will get the lowest price on your vehicle if you purchase the previous model year at the end of the calendar year. The dealer will be eager to clear out last year's models, which puts more bargaining power in your hands.

Get a Co-Signer

If you have poor credit, the rates you receive on car loans will be very high. High rates mean that your interest expenses will be through the roof by the time you pay the loan off. For people with average or poor credit, finding a co-signer for the loan can make a world of difference. A co-signer agrees to pay the auto loan in the event you default on the payments. Adding a co-signer with good credit to your auto loan will improve your rates and help you cut costs.

Go Independent

Shop for car loans from independent lenders, either online or in person. Lenders that are not affiliated with a dealership will almost always have more affordable auto loans than the dealer can offer. Your best bet is to shop around for at least three or four offers on car loan rates from different lenders. Evaluate the interest rates and terms of each loan to decide which lender is right for you.