November 24, 2020

4 ways to avoid overpaying on your car loan

When you want a new car, you might try to pursue it at all costs. There are plenty of enticing new models out on the market, and you might have located just the perfect one. It might stretch your budget a bit, but you’re tempted to go for it anyway. This is likely to result in you getting a higher interest rate and higher loan balance than you really need.

 

On the other hand, you might be purchasing your first car, or buying a car with little to no down payment or credit history. Either of these situations will result in a higher interest rate of principal balance, both of which will raise your overall payback cost and monthly payment. So, how do you avoid overpaying?


Here are four tips to help you stay on budget and not hand off too much hard-earned cash to your lender:

 

  1. Consider downsizing. Do you really need the top model? Look for a comparable vehicle that’s a bit more affordable. This will lower your principal balance, thus lowering your monthly payment and even allowing you to qualify for a lower interest rate (because a cheaper car equal less risk for the bank).

  2. Check your credit. If your credit isn’t good or better and you can wait to buy a car, try to improve your credit picture before getting a loan.

  3. Put more down. Putting more down will lower your principal balance and thus help lower your monthly payment. Again, this could also help lower your interest rate.

  4. Refinance. Stuck in a loan with a high interest rate? Pay on time for at least 12 months and then refinance it with a better credit score and lower balance on your side.