People often apply for a car loan without first considering what difference the rate of interest makes. They will often take the first loan offered to them, without a thought to how much money they could have saved by shopping around. It is essential to compare car loan rates when securing a loan!

There are basically two parts to a car loan. The first part is the length of time that the loan spans, usually from one to six years, and secondly, the interest rate. Even a very small difference in the interest rate, over dozens of payments, can result in a big increase in the total amount you pay for the car.

Before you apply for a loan, you should have a clear understanding of exactly how much you can afford to pay each month. This amount should be reasonable, and should not stretch your monthly budget. With this in mind you should also pay the maximum you can each month, over the shortest period. Also take into consideration other increased expenses that you may have with your next vehicle. For example, if you are going to upgrade from a mini van to a Corvette, your car insurance is going to be MUCH higher! On the other hand, if you're going from a VW Bug to a Yukon, your fuel costs will be much more!

It is also essential that you compare car loan rates. Therefore, you need to get more than one quote, if possible obtain several quotes. Check with several local banks and your credit union. Additionally, many times an auto sales lot may have a good working relationship with a bank or finance company, that allows them to get you a lower preferred customer rate. And don't forget the many opportunities to find a loan by searching on the internet. You can get several quotes without even leaving home!

If possible, pay off the loan in the shortest available time, by making double monthly payments whenever you can. This will save a very large amount of money, compared to five years or 60 monthly payments. This is because every month the loan is not repaid, there is additional interest.

Most people cannot afford to pay off a loan within a year, but you should strive to make the payments in the shortest possible time, two or three years would be ideal. Once you get up to four or five year payment plans, the total interest you are paying can be a large amount of the total cost of the vehicle.

It is very important to compare the car loan rates. If you can save 1% over three years, this may save you $1000 to much as $3000 in total payments. If you could bargain the car salesman down $2000 you would be very pleased with yourself. Well, take the same attitude with the loan. If you can bargain down even a quarter or half a percent, this will represent many hundreds of dollars in savings over the life of the loan.

You should always make every effort to compare auto loan rates, not just the actual cost of the car in the showroom. The cost of the loan is very much a part of the total cost of the car and should not be ignored, or brushed aside as unimportant.

Samuel Timmons
08/15/08

 ↑ Back to Top