Interest rates fluctuate wildly in today’s economy. One day, you can get great prime rates, with the next, rates a few points higher. When you are financing a car, you want to get the best rate possible, and there are several secrets you can keep in mind to ensure you get the best rate.
Go For Fixed Rate Loans
Sometimes, lenders will try to talk you into getting a variable rate loan, pointing out that with these types of car loans they can get you a very low initial rate. This is often true; however, in the long run you will pay as the rate can change every month. What began as a 4% interest rate can end up being 11% or higher down the road. It is almost always better to go for a fixed rate that may be a few points higher. This way you know that your interest rate will always remain the same.
Loan Principal and Term Matters
Sometimes taking out a larger car loan will get you a lower rate. Lenders do this to tempt buyers into borrowing more money. However, when you take out a large loan, you may end up paying out the same even though your interest rate is lower. This is because your loan term will likely be longer, meaning that even at a lower rate, you accrue more interest over the longer period.
Clean up Your Credit Rating
Watch your credit rating closely, and do whatever you can to clean up black marks on your credit report. The better your credit rating is, the better your interest rate will be. Take the time to get a free copy of your credit report from the three major agencies and review it closely. Clean up what you can and you will improve your interest rate.
Choose the Right Car
Buying a high-cost new car may carry a lower interest rate, but again, you will be borrowing more money, often at a longer term, which may balance out in the end. A used car, on the other hand, may carry a loan rate that seems a few points higher, but will be a lesser amount of money, allowing you to pay it off quicker and consequently pay less interest.
Choose a Reputable Lender
This may seem obvious, but many people overlook it. There are a lot of predatory lenders out there who will go after people with poor credit, and hit them with high interest rates. Banks, credit unions, and auto dealers often partner with lenders that are in a position to offer better rates. Just because you have bad credit doesn’t mean you shouldn’t go for prime lenders.
In the end, clear up your credit, and go for a short-term loan with a fixed rate through a reputable lender, on a less expensive car, and you will find yourself paying less interest over time.