Under most circumstances, auto loan terms are flexible. Some borrowers may have to provide a down payment or face a restricted term with poor credit. Otherwise, with good-to-excellent credit you can adjust your term and down payment amount to fit your budget. Consider your rate, term and down payment options to ultimately save money over the term of your loan or afford a lower monthly payment.
Auto Loan Providers
Compare the rates of different auto loan providers to determine where to apply for you loan. Manufacturer banks may offer lower interest rates than you can get elsewhere, but you must have good-to-excellent credit for approval. Check manufacturer websites for rate or lease specials. New car interest rates, offered by credit unions, banks or online auto loan providers, are usually lower than those offered for used cars. Unlike manufacturer banks, traditional lenders offer more flexibility; you may obtain an approval even with poor credit. Sub-prime lenders offer high interest rate loans to risky borrowers, or people with poor credit.
Comparison Tools
Once you determine which lender to apply to, use an auto loan calculator to determine the differences in your loan options. If considering a rebate or rate incentive for a new car, an auto loan calculator allows you to review which option offers a cheaper payment or the lowest overall payback amount. Edmunds.com offers several calculators. Also consider your tax rate, dealer and state fees when comparing your financing options. Adjust your calculations to review how term or down payment amount affects your loan payment and payback amount.
Rate Considerations
Most auto loan providers advertise rates on their websites, but you may have to call for details. Read the fine print; advertised rates are often for new cars, not used. Rates are adjusted by term, as well. Many lenders offer the same interest rate for terms up to 60 months. So whether you apply for a 36- or 60-month loan, the interest rate won't change. Some lenders offer loans in excess of 84 months, which may offer a lower payment, but also expect to pay a higher interest rate. To ultimately determine your interest rate, apply for a pre-approval.
Term and Down Payment
Your term may have the biggest impact on your loan's total payback amount. For example, if you take out a $10,000 loan for 60 months with a 6.99 percent interest rate, you'll pay back an extra $1,880 over the term of the loan. If you took out the same loan for 36 months, you'd pay back $1,124 instead. Consider the effect your down payment has on your payback amount and monthly payment. Also be aware that some term offers may exceed your budget. For example, a zero-percent loan for 36 months may sound advantageous, but without a down payment, your monthly payment can easily exceed $500 for a new car.
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