You Can Save Money on Your Car Loan
Buying a new car can be a thrilling experience. It does not matter whether you are a first time buyer or upgrading to a better car model. If you are financing the purchase of your car through a loan, it is absolutely necessary for you to plan in advance to get the best deal. Here are some indicators which will help you to save money on car loans.
1. Compare options for financing:
Financing of your car through car dealers can be more expensive than financing through other independent lenders. Taking loans through banks based on your credit rating can be a cheaper option. Car dealers generally make a profit in the financing deals, which can be even higher than the profit from the sale of the car. The dealers assess the capacity of the potential customer to pay and accordingly increase the rate of interest. They then tie up with lenders to offer finance at lower rates. A small difference in the rates of interest will help the dealer make a neat profit over the term of the loan.
Scouting around and comparing rates of different lenders can help save on your loan.
2. Take a secured loan:
The rate of interest on loans against tangible security is less than the rate of interest for car loans. It may make sense for you to take a loan against your home if it results in a substantial reduction in the interest rate and installments. Interest paid on home loans can be eligible for tax breaks which can be confirmed by your tax adviser. However, since the loan is against the security of your house, you will need to be very disciplined in repayment. The rates are generally floating and may result in higher outgo if there is any upward revision in the rates of interest.
3. Analyse the terms and conditions of the loan:
Dealers may offer zero interest loans which sound very attractive. What most people do not realise is that you lose out on rebates and discounts on the price of the car when you avail such schemes. A rebate reduces the loan you need to take.
4. Maintain a good credit record:
Your credit record determines your credit worthiness and the rate of interest on loans offered to you. Before availing a car loan, review your credit score and correct any discrepancies you find therein. You can also take steps to ensure that your repayments on other loans and credit cards are regular. A little advance planning will go a long way in securing most favourable interest rates.
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5. Increase the down payment :
The down payment you make goes to reduce the loan you need to take and consequently the installments become more manageable. If you are planning on changing your vehicle, it may be a good idea to continue with the old one for as long as possible as it will give you an opportunity to save more towards a down payment. Alternatively, if you can get a good offer for your old car, it may be a good time to sell and use the proceeds for the down payment.
6. Negotiate and Bargain:
The price you pay for the car and the loan is not just the basic cost of the car but includes incidentals like car accessories, licence fees and taxes. You need to correctly assess the entire costs involved to ensure that you do not end up paying more than you had planned for. Car dealerships offer various discounts and offers not only on the car itself but also on the loans taken through the dealership. While they may be reluctant to give you lower interest rates on the loan, consistent negotiation may induce the dealer to offer extended warranties or free service. Whatever savings you can gain by negotiating prices and discounts will help reduce your future outflows.
7. Consider leasing:
Leasing a vehicle helps you to have a car at your disposal without having to make a large initial payment. The lease payments are generally lower than the monthly payments for a car loan. The drawback of leasing is that you have no resale value at the termination of the lease. Compare lease options from various sources to get the best deals. Also ensure that the quoted monthly payments are all inclusive and cover sales tax and fees.
