With insurance costs and fuel prices on the rise, it seems increasingly expensive to own a car. Yet there are still ways to cut your monthly costs, particularly when it comes to paying off a car loan. The trick is to shop around and consider all of your options before signing any financing contract. Although maintaining good credit certainly doesn't hurt your case, the following are five additional ways to save money on car financing.
1. Consider Refinancing
Refinancing isn't just for mortgages. As car loan interest rates go up and down, you could consider refinancing your existing agreement to take advantage of more favourable rates. This could lead to lower monthly payments, along with lower interest overall. Because cars depreciate quickly over time, it's in your best interest to pay off your loan as quickly as possible. If you manage to lower your interest rates through refinancing, you can then afford to pay more towards your principle each month.
2. Use Savings for Small Amounts
One thing to think about is whether you truly need to apply for an auto loan at all. The smaller the loan you take out, the higher your interest rates will be. Lenders know that smaller loans will be paid off in a shorter period of time, so to make money they must charge higher rates. If you only need to borrow a couple of thousand dollars, it may be in your best interest to dip into savings instead.
3. Buy a Used Car
Besides the fact that new cars start dropping in value the second you drive them off the lot, they also incur more upfront costs. If taking out a hefty loan for a shiny new car is going to add stress to your life, why not consider buying a cheaper, used option? Even a car that's only one or two years old will cost far less than a new model, and will feature most if not all of the same amenities. Take a look at gently used BMW cars at Carsales or other listings sites before you take the plunge and buy the latest 2014 3-series, and you could save a bundle on monthly payments.
4. Look into Leasing
Another alternative is to lease a car rather than buying it outright. This could be a sound financial decision if you like to drive a new car every couple of years, in which case you can negotiate lower payments. However, if you're looking for something for the long haul, it may be better to buy and have the option of selling the car in the future.
5. Look beyond the Dealership
It's always appealing to buy your car in a single transaction, and when your car dealer offers you financing it may be tempting to sign on the dotted line and drive away. However, it's important to remember that your car dealer is a middle man, and you will pay for the convenience of working out financing at the dealership. Although you should ask for a quote, it's still worth shopping around to find out what your options for. You might find better rates directly from the bank.
By comparing your options carefully and taking your time, you can find the lowest possible financing plan. There is no one-size-fits-all car loan for everyone, so it's important to take your personal situation into account for the perfect fit.
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