Whether you are shopping for a new or a used car, these tips will help you to save money. The car loan industry is far from standardized. Shop around at different places and the same person, providing the same identical information on all of the applications, will receive offers with different interest rates, different loan origination fees and other fee add-ons. Use these tips to find the cheapest car loan.
Calculate how much payment you can afford, and how much credit you will actually receive, before ever setting foot on the car lot. The least expensive loans are the ones with the shortest repayment period, especially with the interest being compounded daily. A three-year car loan may also have a significantly lower interest rate than a five-year loan and, due to the lower interest rate, the monthly payment may be only slightly higher.
Price two models that you would like to buy. Include the cost of extra options and upgrades. Then add in all of the fees such as dealer prep and transportation, loan origination charges, and whatever else they plan to tack onto your bill. This is only the amount of money you would borrow upfront to drive the car off the lot.
Go to the Bankrate.com website and pull up their loan amortization calculator. It will calculate how many thousands of dollars you will pay in interest with that rip-off daily compounding. It takes less than a second to calculate. Do this for both vehicles and for both the three-year and five-year car loans.
Divide the Bankrate.com total amount by the number of monthly payments. For example, if the amount is $22,000 over 5 years, then divide 22000 / 60 = $ 366.67 for principal and interest only. Do this for both model cars that you like.
Stop by or call your car insurance agent and ask for a quote on both vehicles. The premium can vary significantly on similar models due to crash rating, recalls, theft rates, cost of repairs and other factors. Add these quotes to the monthly payment above, even if you will be paying for the insurance separately.
Add in additional fees that you might be required to pay on the car loan such as a monthly life and disability insurance premium and monthly payment processing fees, etc. This new total will be a close estimate of the monthly cost of your car. It could be more expensive depending on whether you or the car dealer pays for the required new car maintenance costs (oil change, tire rotation, etc.) every three months.
Compare the totals for both cars along with whatever information your insurance agent provided to you about their safety or cost of repairs. Then decide whether a three-year or five-year repayment plan is better for you. If you decide against tossing that much money into a new car purchase, then follow this procedure for a gently used car.