It is cheaper to pay cash when buying a car. However, in most cases, you will need to finance a car. Before you shop around for a car loan, assess your finances. Check how much you can afford so that you do not end up missing on the monthly payments. When assessing your finances, consider the monthly loan repayments, maintenance, and repairs of the vehicle, auto insurance, and fuel. Here are a few tips to get the best interest rate.
How Is Your Credit Score?
Your credit history determines the interest rate of the bank or dealer charges. A high credit score qualifies you for a low-interest car loan. Before you get a loan, understand the credit score ranges and what the lenders need. A score of between 800 and 850 is exceptional; between 740 and 799 is very good; between 670 and 739 is good; between 580 and 669 is fair, and below 579 is poor.
If you have a low score, you can pay up to 19% interest on a car loan, sometimes more. With a very good or exceptional score, you can pay as low as 3.5% on a car loan. The lower the interest rate paid, the lower the monthly payments you will make. Improve your credit score by paying your bills on time, clearing your debts, and not missing any monthly payment for your loans.
Compare Auto Loans
You can walk into a dealer and have them shop around for the best loan for you. However, this arrangement will not always get you the best deal. Dealers may have arrangements with lenders where they earn interest whenever they refer a client. This way, they will refer you to a specific lender who may not offer you good rates.
Because lenders offer a direct loan, shop around and get the best offer. Get quotes from different lenders and compare the monthly payments and the interest rate paid at the end of the repayment period.
Save Up for the Car
You can reduce the amount of interest you pay on a car loan if you make a large down payment. Making a large down payment not only helps you reduce how much you borrow but also gives you access to a lower interest rate.
Further, you can reduce the amount you borrow by taking the most affordable car. Going for a more affordable model will reduce the repayment period and consequently cut down on the interest you pay.