Auto Loans

Auto Loans  

A good auto loan starts with the lowest annual percentage rate and ends with mindful management. Here are some guidelines.

 

Hunt for rates

Don’t assume that the best financing will come from a dealership, it often doesn’t. See what banks and credit unions have to offer. Tips: Your first move is to calculate the total cost of ownership so you know what you’re getting into; include principle and interest as well as insurance, gas and maintenance. Also remember some of the lowest rates can be found online. Use an auto loan calculator to test drive different payment options.

 

Get pre-approved

Walking into a dealership with a preapproved loan gives you a bargaining chip. It can also help keep things simple during negotiation. You can say, “Here’s what I’ve got, try to beat it.'"

 

Go short term

The faster you pay off your loan, the more money you'll save. Limit your loan to 48 months at the most. Any longer and you might want to think about buying a cheaper car. Your monthly payment should be about 8% of your monthly income or less.

 

Pay automatically

The easiest payment method is an automatic payment plan. A set amount is automatically drawn from your bank account each month. Credit dips and late fees disappear. Many institutions may even reward an automatic payment plan by charging lower fees.

 

Refinance wisely

Maybe interest rates have dropped. Or your credit rating has risen, making you eligible for better terms. Whatever your reasons for possibly refinancing, first, check a free online service such as the Kelley Blue Book to see if your car is worth more than the amount you owe. If it is, refinancing makes sense. But if your car is worth less than what you owe, it’s usually better to hang on to the car and try to pay off the loan as quickly as possible.

 

Consider consolidation

If you’re paying off a few debts along with your car loan, consider using one big loan to pay off all your smaller debts in one fell swoop. Consolidation may allow you to pay a lower overall rate of interest—especially if your car loan came at a hefty price. Just keep in mind that combining all your debts puts all your assets at risk. So knowing you can handle a consolidation loan is essential.

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