Saving Money on Your Car Loan

So you need a car. The best way to pay for your next vehicle, regardless of whether it's pre-owned or new, is with cash. Your car will depreciate in value over time, and you lose even more money if you're paying interest on it. Unfortunately, most of us just don't have the extra money to pay up front; Cars are far too expensive. That's where car loans come into play. By financing your new automobile over an extended period of time rather than paying for it all at once, your buying power increases dramatically. But there are certain aspects to pay particular attention to.

When buying a house, the best way to approach it is by paying the smallest down payment possible. You want to borrow as much as possible to buy the maximum amount of square footage/acreage that you can afford. This is because houses increase in value over time-the more expensive your home is, the more the value will appreciate. Cars, on the other hand, depreciate as soon as you drive them off the lot, and continue to do so for the remainder of their existence. You'll want to put down the largest down payment you can afford to reduce the amount you borrow, and thus your interest as well.

Important Factors

Arguably the most important factor in your financing decision is the length of your loan. The greater part of auto loans last between 36 and 60 months-three, four, or five years. There also two and six year loans, but they're rather uncommon. The longer the loan lasts, the lower your monthly payments will be. However, you're going to accumulate much more interest. Go with the shortest loan that you can afford without stretching yourself beyond your means to avoid racking up interest over the life of your loan. The interest rate (also referred to as APR) is the amount-expressed as a percentage-that you pay for borrowing money. The less money you borrow, the less you pay in interest. Clearly, you're going to want to find the lowest possible APR.

Compare

When you're comparing car loans, you should have the same car quoted with different down payment amounts. As has been previously stated, a higher down payment will lower the cost of your monthly payments, and it may decrease the interest rate, too. Yet, the difference in monthly payments between the down payment options may be negligible over an extended period of time. In that case, it might be in your best interest to go with the longer lasting loan and keep hold of the extra cash for the time being.

Know how your credit report will affect your loan.