The right auto financing package can help you secure a good interest rate on your next car purchase, and ultimately a lower car payment. Several options are available when financing a car. And doing your homework and exploring different methods of financing helps you choose the deal that's right for you.
Fix Credit
People with good credit scores can obtain the best interest rates on auto loans. Lenders vary in their definition of a good score. But according to Experian, a credit score 700 or higher generally indicates a good credit history. You can review your personal score by ordering from Myfico.com. If your score falls below this mark, take action to build a better score by paying your bills on time every month and reducing your existing debt balances.
Choosing the Right Term
A longer auto loan term will reduce your monthly payment. But if you can spare extra money each month, skip the 60-month financing option and go with a 36- or 48-month financing package. Benefits to choosing a reduced loan term include saving money on interest each month and you will paying off the vehicle loan more quickly.
Down Payments
Applying for auto financing with a down payment can increase your negotiating power. Auto lenders don't typically require down payments, and buyers can purchase without any out-of-pocket expense. Key benefits to financing with a down payment include knocking down the loan balance, which reduces the monthly car payment. And sometimes auto lenders reduce the interest rate on the car loan when a borrower supplies a down payment. Put down as much as you can afford.
Considerations
There's the option of trading in an old vehicle when financing a new car. But if you still owe money on your old car loan, consider selling the car yourself first and paying off the old car loan. If there are funds left over, use this as a down payment. The downside to trading in a car is that the dealership may not offer enough to pay off your existing car loan. For example, if you owe $4,000 on your car, the dealership may only offer $1,500 for the trade in and attach the remaining $2,500 to your new car loan.
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