Whether you’ve recently got your first car loan or have had one for a couple of years, you may feel that you’re not getting the best interest rate possible. In fact, it’s not uncommon for borrowers to enhance their credit scores after taking out a vehicle loan. Fortunately, refinancing is always an option to reduce the interest rate on your car loan.
Know Your Interest Rate
One of the most common questions that borrowers have is what is apr on a car loan. According to Lantern by SoFi, “APR is the total annual cost to borrow money, including interest and fees, represented as a percentage”. The lower the interest rate that you get, the less money you’ll have to pay over the life of the loan to borrow the money from your lender. It’s essential to note that the lowest interest rates are typically offered to borrowers with the highest credit score ratings as they are perceived as not-very-risky to lenders.
Survey Various Lenders
Many borrowers are amazed to find out just how different interest rates can be at different lenders. One may offer you 8% interest, while another lender may offer you 10%. For this reason, it only makes sense to survey various auto loan lenders to see who is going to offer you the lowest interest rate on your loan. It’s important to realize that the interest rate on a used car loan is going to naturally be higher than the interest rate on a new car loan.
Add a Cosigner
If your credit isn’t overly stellar, it’s likely causing your interest rate to be high. Fortunately, there is a shortcut to achieving those low-interest-rate used car loans without having the best credit score. This shortcut is adding a cosigner with a stellar credit score. Because lenders are able to hold the cosigner liable for any default of the loan, they’re more likely to offer you favorable interest rates. Remember that getting a lower interest rate is all about reducing your risk to the lender.
Put Down a Big Down Payment
While you’re likely not capable of paying the entire cost of the used vehicle that you want, that doesn’t mean that you shouldn’t spend any money. Rather, you should consider putting down a sizable down payment on your loan. This will help to reduce the amount of interest that you pay because you won’t need to take out the full-price loan amount. It will also reduce your perceived risk to lenders, which means getting a better interest rate on your used car loan.
Shorten Your Term
Most vehicle loans are given a three to five-year term. However, that doesn’t mean that you should take the longest term that is offered. While taking out a shorter-term loan will result in a higher monthly payment, it will usually result in a lower interest rate. When you pay off your loan in a shorter amount of time, lenders perceive you as less risky.
Reducing your used car loan interest rate is all about reducing your risk with lenders. When you utilize the tips above, you can show lenders that you’re highly likely to repay your loan and can be rewarded with a better interest rate.