Editor's choice: Carvana
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When you’re ready to buy a car and want to find the least expensive loan, you’ll want to take the time to compare your options — and learn what plays a role in the final price you pay. Finding a cheap car loan takes a bit of elbow grease, but it can be worth it if it keeps money in your wallet and out of your lender’s hand.
Regardless of the rates and terms you see advertised, it’s often possible to get a better deal if you’re willing to negotiate. Here are some tips for reducing the interest you pay:
Here are some factors to consider when comparing different car loan offers:
Imagine this scenario: Say John found a car loan for $35,000. Taking into account his down payment and the trade-in value of his old vehicle, he knows he’ll need a car loan for $25,000. He checks out two different lenders’ websites to compare his options. The first lender offers an interest rate of 8.5%, while the second lender charges a higher interest rate of 8.75%. He doesn’t bother to compare other fees and goes with the first lender.
|Description||Lender A||Lender B|
|Fixed interest rate||8.5%||8.75%|
|Loan term||5 years||5 years|
|Total amount paid||$32,274.60||$31,205.80|
John chose to go with the first lender because of its cheaper interest rate, but it wasn’t necessarily the best deal. He plans to make extra payments off his car loan each month, but he didn’t take into account the prepayment penalty he’d be charged for doing this. He also didn’t check how much the origination fee was. Those additional fees ended up costing him an extra $1,068.80 overall.
In this case, the loan with the slightly higher rate but far better loan terms ends up being the cheaper option overall.
Sometimes a cheap car loan means one that won’t take up a huge chunk of your budget each month — even if the amount you pay in interest ends up being a bit higher at the end of your loan. Here are some ways you can reduce your minimum monthly payments:
The type of loan you borrow plays a role in the total cost of financing your car. While there are a few routes you can take, the cheapest option is usually taking out a car loan secured by the car you’re buying.
While the information and documents you need to provide varies by lender, you’ll likely be asked for the following:
You can often speed up the application process by having all of your documents on hand before you apply. Many lenders offer preapproval, which means you can check the rates and terms you might qualify for before completing a full application. This gives you the chance to compare cheap car loans to find the best one for you.
Finding a cheap car loan can make the difference between having a little extra cash to spend each month and cutting things a bit too close for comfort. When you’re on the hunt, comparing interest rates and terms from multiple lenders is key to finding the best deal out there.
And don’t forget to check out our guide to car loans to learn more about how it all works.
Image source: shutterstock
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