In the vast majority of cases, you will get a car loan instead of buying your new vehicle outright, particularly in the case of a new car. When calculating the amount that you will pay for your next SUV, truck, or another vehicle, there are multiple factors to consider. There is the sticker price as well as the loan itself. With the loan, you need to look at the loan rate, as it will determine the monthly payments you make and the amount of interest you pay over the course of the loan. Follow these essential steps to help get a better loan rate on your next car.
Work on Your Credit Score
The most critical factor impacting the interest rate on your automotive loan is your credit score. As such, you should always make an effort to build up a good credit score and keep it this way. Lenders see those with better credit scores as less risky, which is why they tend to offer lower (better) interest rates. To maintain a good credit score, make sure to minimize the amount of debt you take on and always pay bills on time.
When it comes to automotive loans, shopping around to compare prices is just as important as it is with any other major purchase. Since a small difference in your loan rate can add up to thousands of dollars over the course of your loan, it is worth the extra time to comparison shop and gets the best rate.
Maximize the Down Payment
Another factor that impacts the loan rate is the down payment you make. Larger down payments will reduce your monthly payments, even if the interest rate remains the same since that interest will apply to a lower balance. Additionally, lenders tend to view bigger down payments as an indication of reliability so they will offer better rates to those who make a bigger down payment. Ideally, you should try to make a down payment of at least 20 percent but do as much as you can.
Consider a Co-Signer
Although this option will not be right for everyone, those who are now financially stable but have a poor credit score may want to consider a co-signer. Having a co-signer lets you take advantage of their higher credit rating to get a better rate. Just remember that if you cannot make a payment on your auto loan, your co-signer will have to do so. Otherwise, it will count against their rating. As such, you should only use a co-signer that you have a strong relationship with.
Pay Attention to More than Just the Interest Rate
While the annual percentage rate, or APR, is a key point of comparison when looking at automotive loans for your next SUV, it is not the only thing to consider. You should also look at the loan term. Typically, a shorter term will have higher monthly payments but reduce the APR, so you pay less overall. As a general rule, longer loan terms typically have much higher interest rates. Overall, you should always try to go with a shorter loan term if it is possible in your situation.