6 Tips for Financing Your New Vehicle
Many people who buy new cars will finance them with an auto loan. As these loans are backed by the value of the car, the interest rate charged on these loans are lower than personal loan interest rates. Still, savvy buyers can achieve lower interest rates on their car purchases with the following six tips.
1. Increase Your Down Payment
When you make a down payment you are making an investment into your car. A larger down payment has the added benefit of showing a potential financer that you are less likely to leave the car behind if you got into an accident and renege on your car loan. If you have the ability to make a larger down payment on your car you can often reduce your interest rate significantly.
2. Improve Your Credit Score
Your credit score determines your credit worthiness for a lender. Review your credit score and history before applying for a credit loan and see if there are any items on the report that you can clear up before you apply for a car financing loan. Small changes like becoming current on an old credit card loan will often help you to significantly reduce your c financing interest rate.
3. Shorten the Duration of Your Financing
Lenders take a greater risk for collection and interest rate risks when they loan for longer periods of time. If you can manage a larger car payment, you can often obtain a lower interest rate when you take a loan for a shorter period of time.
4. Shop Around for Outside Lenders
Many people will finance their car purchase through the dealership that they end up buying form. Many car dealerships will have special programs in place to incentivize your car purchase from them. While it is a good idea to listen to these offers, you should also line up potential other outside lenders willing to lend you money for your car purchase. Contact banks and credit unions and get several different rates for your car’s financing. Then compare it to the interest rate offered by the dealership and find the best option for your car’s financing.
5. Prepare Documentation Supporting Your Income
A lender will need to see documentation supporting your income and financial capacity to pay your car payments monthly. Prepare this documentation early and have copies of pay stubs and a letter for your employer documenting your salary. Include bank statements and details on other assets that you have that will support your financial ability to repay a car loan.
6. Understand your Budget
Many people who have problems financing a vehicle start by buying a vehicle that is too expensive given their financial position. Start by developing a budget for yourself and choosing a vehicle that you can afford to ma payments on given your financial position. Build in a buffer so that you can avoid falling behind on your car payments and hurt yourself financially.
A car is one of the largest purchases that a person makes. Lowering the cost of financing said vehicle can provide significant financial benefits. Consider the aforementioned items when seeking out a car loan.