An auto loan allows you to finance the purchase of a vehicle that you need to get to work or get the kids to school each day. If you want to lower your monthly payment, you will want to find a loan with the lowest possible interest rate. What are some ways that you can lower your interest rate?
1) Have You Served Your Country?
Those who have served in the military in the past or are doing so currently could qualify for special rates on auto loans. In some cases, it may be possible for military personnel who are active or have been honorably discharged to get interest-free loans through such institutions as Air Force Federal Credit Union. There are other government employees that could explore government regulations with a financial adviser and determine whether these benefits may apply to them, too.
2) Increase Your Down Payment
Reducing the amount that needs to be financed is an easy way to lower the risk that the lender takes when lending to you. Those who finance $10,000 or less will generally see lower interest rates than those who finance more than $10,000.
3) Bring a Cosigner
Do you have a friend, relative or spouse who has good credit? If that person is willing to sign the loan with you, it may be possible for those with bad credit to get a lower interest rate. This is because the cosigner promises to make payments if the first borrower does not. The lender can then give you a lower interest rate because the risk of not getting paid back is much lower.
4) Further Secure the Loan
You can add additional collateral to a loan to lower your interest rate. For example, you may be able to put up your house or a valuable piece of art as further security for the loan. The only downside is that you will lose your collateral if you don’t repay the loan.
5) Know Your Credit Score Before You Apply
Dealers are notorious for misrepresenting your credit score when they check your credit. They may tell you that you have a sub-prime credit score or that your credit score is a 650 when it is really closer to 700. By checking your own credit, you get a better idea of what interest rate you should aim for when negotiating the loan.
There are many great ways to lower your interest rate when applying for an auto loan. By knowing your credit score, adding a cosigner or increasing your down payment, you won’t have to pay too much each month for your next vehicle.