- Posted 17 Feb
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As you begin to tighten the reigns on spending habits and look to ways to reduce your debt, one area that you’ve been concerned about for a while is regarding your car.
You know it’s on its last legs and you’re not really in financial situation to be able to just run out and by a new car.
To help alleviate some of this concern, there are ways that you can find the best deal when it comes to reducing car loan interest costs, so that you can afford to get a new car, no matter what your financial situation is right now.
Follow these tips and make your decision based on what works for you.
#1: Review Your Credit Score
The best way to get access to a low interest car loan is to have a perfect credit score. If you don’t have this, then you will have to pay more in interest rates.
If you can hold off purchasing a car right now, focus on increasing your credit score. Just a small increase can save you a significant amount in interest payments over the course of your car loan.
Work on paying off your debt and working with your lender to figure out how you can improve your credit score.
#2: Don’t Borrow Small Amounts
If you’re only looking to purchase a car that’s worth less than $5,000, don’t even look at a car loan. Your best option is to save the money instead (if you can delay buying a new car).
The reason you’d want to avoid taking out a small loan is that it won’t take you long to pay this off, which isn’t what the lender wants to hear. They make their money via the interest rate they charge, so the longer the loan, the better for them.
They will charge you a very high interest rate on a small loan because of this.
If you do have to get a car now, don’t even consider borrowing less than $5,000, regardless of how much you actually need, as you could see yourself paying double in interest.
#3: Consider Refinancing
If you have a home loan, your best option would be to look into refinancing your home loan and accessing some of the equity you have there to purchase your new car.
If you already have a car and you’re worried about the interest you’re currently paying, you can also look at refinance your car loan. This will also reduce the amount of interest you’re paying and lower your monthly repayments. Another option to consider if your financial situation is less than desirable right now.
#4: Shop Around for Finance
This really goes without saying, but if you’re looking at getting finance through a dealership, then you’re going to be paying top dollar when it comes to interest rates and fees.
Shop around for your car loan finance; you want to make sure you’re getting the best deal possible.
Get as many quotes as you can before you make a final decision, and don’t just focus on the repayments, make sure that you’re aware of any fees associated with paying the loan off earlier and any other hidden costs.
#5: Consider Leasing
If you’re not too concerned with owning the car, then leasing a car could be a good option.
If you like to get a new car every few years and don’t want to worry about maintenance costs, then leasing a car could be a great option for you.
Generally, your monthly payments will be lower and maintenance and fuel costs are often included in those payments.
Consider a lease if you’re not worried about owning the car at the end of the term.
Always Plenty of Options
The bottom line is, there are plenty of options when it comes to lowering the interest you pay on buying a car. If you can, avoid rushing into buying a car, and take your time to find the best deal for you and your financial situation.
If you need help buying a car and considering your car loan options, chat to the team at Australian Credit and Finance today.