Keep your repayments down with a low interest rate car loan.
5 tips to get a low-interest car loan
Low-Interest rates are usually reserved for those with good credit and regular income. Here are five ways you can get the lowest rates possible for your next car loan.
1. Have a stable job
A bank is more likely to view you as a financially stable customer if you’ve held down the same job for several years — changing employers often can signal instability.
2. Maintain a good credit history
3. Offer a deposit
Lots of lenders are willing to lend you the full amount to purchase a car. But if you can afford a cash deposit or have a car to trade-in, you’ll borrow less and get a lower interest rate.
4. Shop around
Never accept the first low-interest car loan offer you see. Always take the time to shop around and compare what else is available. Be prepared to ask questions about loan terms, whether the rate is fixed or variable and if there are any prepayment penalties.
If you’ve already done some research and you know what other lenders are offering, use this information as ammunition to strengthen your negotiations. Ask about discounts on your interest rate and if they’ll waive any fees to win your business.
Just because you see a low-interest rate advertised for a car loan with one particular lender, don’t automatically think that’s how much you’ll end up paying. Those ultra-cheap interest rates may only be available to you if you have excellent credit or if you are buying a certain type of car.
Compare car loans by APR and loan term
Need more information? Check out the details in the car loans APR table below.
How much will a low interest rate car loan cost?
Low interest car loans come with a few costs, but each individual loan will differ depending on the lender you apply with.
Here’s are some fees to watch out for:
- The origination fee. This is the cost to set up your car loan. Lenders usually add this fee into your loan amount to be paid off with the rest of your principal.
- Other monthly fees. Some loans could have maintenance fees to keep your account open.
- Early or additional repayment fees. If you repay your loan early or make additional payments you may be charged a fee to make up for the loss of interest on your loan.
- Late payment fees. Set up autopay to avoid the fee for late or missed payments.
Five- vs seven-year loan term
Let’s assume you want to borrow $20,000. Over a five-year term you might be quoted an 8% interest rate, but you’re offered a 7.5% rate if you accept a seven-year loan term. Let’s see how it would work out.
|Low interest loan details||8% interest rate||7.5% interest rate|
Total interest paid
If you choose the 7.5% interest rate your payments are almost $100 per month cheaper. This can be appealing because it’s obviously more budget-friendly. Unfortunately, even with the cheaper interest rate you end up paying more than $1,436 in additional interest charges.
One option is making additional payments and paying off your car loan sooner, but check to see if you’ll be charged an early repayment fee that wipes out any savings you thought you were getting.
Compare car loans
What factors influence interest rates?
Buying a brand new car might get you a lower interest rate, but a new car might not be what you need — or can afford. Here are some factors that can influence the interest rate you pay, even for a car to get you from point A to point B.
- Secured or unsecured loan. These loans are cheaper than unsecured loans becuase the car uses your car as security for the loan.
- Fixed or variable interest rate. You’ll usually find that the variable rate offered is usually cheaper than the fixed rate because it might fluctuate throughout the loan term.
- Age of the car. This determines the type of low interest car loan you’re eligible for. When it comes to used cars, some lenders won’t approve loans for cars with too many miles or are 10 to 20 years or older. Cars older than 20 years may need to be bought with a personal loan instead.
- The loan term length. Calculate your monthly payments over a three-year, five-year and seven-year term to make sure you can keep up with payments. However, with longer terms, you’ll pay more in interest.
- Employment status. If you have a stable employment history and you can show documentation to verify your income, you’ll typically qualify for a low interest rate car loan. However, if you’re self-employed and you can’t verify a source of income, you could pay a slightly higher rate.
- Your credit history. If you have poor credit history, it’s likely you won’t qualify for those really low advertised rates. Your search for car loans may be limited to higher interest rates until you can improve your score.
- If brokerage fees are charged. If you’re getting a car loan through a broker or car dealership, you might be expected to pay brokerage fees. Some brokers charge a percentage or a flat free ranging from $200 to $500.
The best loan for you will be the one offered with the lowest interest rate and minimal extra costs. Check what fees are being charged for your loan and ask them to be reduced. If you can’t get them reduced, shop around elsewhere for a more competitive deal and always compare your car loan options before you apply.