You can pay less interest on a car loan by shopping around for offers, making a large down payment, opting for a shorter loan term, making additional payments and declining extra coverage options.
1. Check Out Different Lenders
When you’re buying a car, their finance department can shop and compare vehicle loans for you on your behalf. The drawback, however, is that dealers aren’t obligated to offer you the lowest rates you’re eligible for.
It may be advantageous to compare multiple loan offers before you visit the dealership. You can even apply for car loans on lenders’ websites. Some lenders may even prequalify you with a soft credit check, which won’t negatively affect your credit score. While applying with multiple lenders may involve some time and effort, the result could be a much lower interest rate that saves you money over the life of the loan.
Even if your best efforts don’t lead to a substantially lower interest rate, all is not lost. If your credit improves or market rates drop, you may be able to refinance your vehicle later to get better terms.
2. Make a Large Down Payment
The more you borrow on your car loan, the more the lender is at risk if you default on your payment. When you make a sizable down payment or trade in your vehicle, you lower your borrowing amount and may even qualify for a lower interest rate.
For example, if you put R6,000 down on an R18,000 car, you would have to borrow R12,000 and pay interest on that amount.
3. Get a Shorter Term Loan
Generally, lenders offer lower interest rates with shorter repayment terms because there’s less likelihood you’ll default on a 48-month loan than on a 96-month loan. Scoring a lower interest rate can help you save on interest charges over the length of the loan.
Keep in mind, however, that shorter repayment terms come with higher monthly payments. Make sure you can afford the monthly payments on a shorter loan before signing.
4. Make Additional Payments
When you pay more on your car payment, you’re paying off your loan faster and reducing your overall interest charges. Here are a few strategies to make additional payments on your car loan.
Take advantage of extra income. Direct windfalls like a tax refund, work bonus or even a retroactive pay increase towards your car loan.
5. Decline Options You Don’t Need
When you finance a car, the sales team will typically offer several dealer options, upgrades and extras that can make your loan much larger. Some of these options include:
- Extended warranties
- Guaranteed asset protection (gap) insurance
- Service contracts
- Rustproofing
- VIN etching
- Fabric and paint protection
- Tire and wheel warranties
Make sure you completely understand what you’re getting before agreeing to these options, as the added costs can drive up your total loan amount and overall interest charges.
If you require guidance or assistance with managing your loans contact us on info@thumaminadebt.co.za.
