10 Tips For Saving on Your Car Loan
The process of finding your new car and getting a great loan can be a whirlwind experience. Once you drive off the lot and the dust settles a bit, it seems like the most daunting part is just beginning: paying off the loan over the next three to five years. Paying your auto loan is useful in many ways; it helps you finance your car over an extended period of time and can increase your credit score as you prove to be a reliable borrower. But what if there is more you can do with the loan to make it work in your favor, and help you save money in the long run?
Base Your Plans Around What Kind of Interest Applies to Your Loan
Is your loan based on simple interest or compound interest? Most auto loans use simple interest, or interest that is only calculated on the total amount of the loan. (Also known as the principal amount). Compound interest calculates interest on the principal amount of the loan as well, but also on the increasing interest as it accumulates; so yes, you end up paying interest on interest. Knowing the difference between these types of interests can help you better predict how your loan will impact your finances one to two years from now, in addition to next month. Using a loan calculator can help you along the way.
Keep an Eye on Interest Rates
Watching how the auto loan market is fluctuating can help you make better decisions on refinancing, or when you apply for a new loan to cover your previous loan. Watching for any improvements on the market in terms of average interest rates will help you save if you decide to refinance your existing loan.
Be Smart About Refinancing
Refinancing can benefit you in a couple of ways. You can extend or reduce the term of your loan to help accommodate changes in your finances and can be a benefit either way. You can also choose to refinance when the loan market is experiencing better times than when you got your existing loan and get a lower interest rate. Lastly, having an auto loan and making timely payments can help improve your credit score, which will give you a lower interest rate on your loan if you refinance wisely. Read our blog post on refinancing for more information on what you should be thinking about if you are considering refinancing your auto loan.
Pay on Time, Every Time
Late payments can stay on your credit report for seven years. That’s a lengthy period of time to be punished for what might have been a small mistake. However, late payments usually aren’t submitted to the major credit bureaus until they go unpaid for at least 30 days after the due date. Although you will almost always be charged a late fee, it isn’t too late to make sure your credit score isn’t affected by a past due payment. Overall, paying on time or early is one of the easiest ways to improve your credit rating or remain in good standing.
Split Your Monthly Payment into Two Half Payments
Splitting your larger monthly payment into two biweekly payment helps you pay more over the course of a year without making any drastic changes. Divide your usual payment in two and pay that amount every two weeks. This means you end up making 26 half payments per year, which ends up being the same amount as 13 monthly payments. You’ll end up paying more just by budgeting a little bit differently. Some lenders do not permit this, but make sure you take advantage of this tactic if you are not penalized for making more than one payment per month.
Snowballing Debt: How It Works
The Snowball Method refers to tackling the smallest debts first, paying them off in full while making minimum payments on your other debts, and making even more progress paying off the larger debts once you have more income to increase your payment amounts. Businessman and financial expert Dave Ramsey explains how the Snowball Method is more about behavior modification rather than crunching numbers, but it’s effective.
Make Larger Payments Early in The Loan Term
If your loan was calculated using simple interest, as most are, front loading the beginning of the loan term with larger payments can help you save more on interest. Factor these extra payments into the amount you need at the beginning of getting your new car. For example, instead of planning on having 20 percent of the car’s price tag for the down payment, plan on having another 5 or 10 percent of the funds available to get a head start on paying your loan and other fees. Some lenders limit this, as they are funded by the interest you pay, so make sure you can do this before you start planning.
Treat Your Monthly Payment as The Minimum Payment
Although some lenders limit your ability to pay more in the beginning of the loan, it is significantly more difficult for them to restrict the amount you can pay once per month. So, treat your regular monthly payment as more of a minimum balance due. Even paying an extra 10 percent each month will help you pay off the loan in less time.
Utilize Extra Income When You Can
Your budget may not allow you to pay extra on your regular monthly payment. Instead of using that method, try making larger payments a handful of times per year. This can be when you receive a raise or a bonus, receive money as a gift over the holidays or on your birthday, or other times where you suddenly have extra cash. Aiming to make an larger payment quarterly or biannually will pay off in the long run.
Motivate Yourself with Decreasing Debt
Your debts often appear to be very frightening things that are completely out of your control. They end up influencing a lot of your life decisions, and how you are able to manage your finances. Although the numbers can seem daunting, slowly seeing the amount owed decreasing will motivate you. Set attainable goals and milestones, and even plan small celebrations for when you get to these. Splurging a little bit along the way will remind you what your life will be like when you are debt free.
And when you are in the market for that new car or truck, G&E’s wide selection of low mileage quality vehicles is sure to include a good match for every customer’s need. Every car and truck we sell goes through a 115-Point Inspection by our in-house Certified Technicians and comes with a free Carfax Report and a 30-Day or 1000-Mile Warranty.
We work with all our customers to help you get financing that works with your current financial situation. The entire process takes no time at all. You can even start from home by completing our on-line application. Of course, you can always call us for more information or to get answers to any questions you may have. And feel free to stop in anytime to discuss your options and check our inventory. Our staff is always available to help you get into the right car or truck that fits your needs and budget. We are conveniently located at 451 E. Lincoln Highway in Langhorne, PA and our phone number is 267-560-5519.