How to Save Money on a Car Loan

Whether new or used, buying a car is an exciting journey, albeit at times an expensive one. Cars are regarded as big ticket items, not only due to their hefty price tag but also because they demand proper maintenance and care further down the road (pun intended). 

As such, it is paramount that you try to save up as much as possible on your car loans and find the best deal on financing so that you’ll save up more for these long-term costs. Here we have compiled some of the best ways to help you save on your car loan.

Set a budget

Before you pull the trigger on buying a new car, always work out your budget first to ensure that you never go beyond your means. Ask yourself how much you can comfortably afford to pay. Factor in not only the price of the car but also how much it costs to keep it on the road for however long you plan to keep it. Things like petrol, servicing costs, registration and insurance should be considered. 

You will then have to determine how long the loan term will be. A shorter-term loan would help you save on interest charges, but you’ll have to pay more in each monthly payment. In contrast, a longer-term loan would have the costs spread out over a longer repayment period, yet with a higher interest rate. You can use a car loan calculator to give you an idea of what repayments might look like depending on the length of your car loan, this could help you work out what will best suit your budget. Making sure you’re able to afford your car loan repayments is one of the best ways to save and avoid spending too much. 

Have a good credit rating & keep up with repayments

The rule of thumb with financing a car is the better your credit score, the better the interest rate you may be able to get on your car loan. Banks and lenders will use the credit rating system as a measure of your potential reliability as a borrower. Thus having a good credit history is key to getting a lower rate, saving you a lot of money in the long run. 

Improving your credit score can be achieved by simply practising healthy financial habits, such as paying your existing loans on time, avoiding having multiple credit cards you don’t need, and setting up automatic payments for your bills so you won’t miss out on any payment deadlines. 

The last point also relates to your car payment loans. When you’ve got your car loan in place, it’s imperative that you pay your car loan repayments on time. With the internet and mobile banking, it’s easier than ever to set up automatic recurring payments to your lender. To make it easier, you could also set up your repayment schedule to coincide with your payday. Coupled with the automatic payments, when money comes in, it gets directed towards paying your debt. This way you won’t have to worry about remembering to make the payments yourself, and you don’t risk having already spent your paycheck on other things before paying your loan.

Buying a used car

While being able to buy a shiny new car is a dream for many people, sometimes you might be better off getting a used vehicle. One of the key negatives of purchasing a new car is that they depreciate in value the moment you drive off the dealer’s lot. When buying a used vehicle, it has already depreciated in value, so you can often get one for a lower purchase price. 

Buying used can be a good option for those on a tighter budget. Something to keep in mind when buying a used car, however, is to ensure the vehicle is in good condition and will be reliable for many years. There can be risks of uncertainty attached to a pre-owned car, but as long as you get it properly inspected, and find one with clear maintenance history and preferably still under the manufacturer’s warranty, you should be good to go!

Choosing the right car loan option

There are two types of car loans you can get, secured and unsecured loans. With secured car loans, the car will be used as collateral for the lender in case the loan defaults. This type of loan offers less risk to the lender, and as such lenders can typically offer more competitive rates with this type of loan.

Unsecured loans, on the other hand, will grant you more freedom in how you spend the money. Your car won’t be taken as collateral, but this puts the lender at greater exposure to risks, and consequently will charge a higher interest rate for it. This type of loan is more common with older used cars as the lender is less concerned about the age or condition of the car since they won’t be repossessing it if the loan fell through. 

Choosing the right loan for your needs and budget can help you save money in the long term. If you’re unsure which loan type is best for you, then it’s worth speaking with a finance specialist who can assess your circumstances and financial situation to help you make the best decision. 

For more information on car loans or to apply for one, contact the team at 360 Finance to discuss your options.