When purchasing a vehicle, an auto loan allows you to spread out the associated costs over a period of years. You must ultimately pay all of the associated costs, however. If you're using an auto loan to purchase a car, here are some strategies on how to manage the associated costs.
Purchase a Lower-Priced Vehicle
The most obvious way to lower the total cost of an auto loan is to simply buy a vehicle that costs less. Not everyone realizes all of the ways that buying a cheaper vehicle can lower costs, however. When you buy a vehicle that costs less:
These various savings will let you pay less upfront, pay less per month, and possibly pay off your auto loan early.
Compare Interest Rates
Just as you'll undoubtedly compare prices on the car you want, you likewise should compare interest rates on the loans that'll pay for your car. Lenders charge different interest rates, so shopping around could help you find a slightly lower rate.
Even if you get only a small reduction in your interest rate, that'll save you monthly each month and over the course of the loan.
Extend the Duration of the Loan
If your primary financial concern is what your monthly payment will be, you can extend the duration of the loan until as long as possible. Most auto loans are written in year-long increments, often lasting for between 24 months (2 years) and 84 months (7 years).
By giving yourself more time to pay off the loan, you'll be able to make smaller payments each month. You may be able to purchase a nicer car by spreading its cost over up to 7 years. Alternatively, you could leave more room in your budget for unexpected expenses, or splurge on another purchase that you want to make.
Pay More Up Front
If you're able to pay more at the time of purchase, you'll be able to reduce how much you borrow. This likewise will result in lower monthly payments, and you'll end up paying less in interest over the course of the loan's duration.
For more information, contact a local auto loan lender, like FCCU - First Community Credit Union.
Share7 January 2022
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