Very few people can afford to pay cash up front for their next vehicle. Most buyers must finance a car through the dealership. Buying a car can be a significant expense, but car loans don’t have to break your budget. With a few minor tweaks to your car payment habits, you can save hundreds or maybe even thousands on your car loan.
It just makes sense that the best way to save money on a car loan is to borrow less money from the start. Lowering the principal of your loan means you never have to pay interest on the amount you don’t borrow. You can lower your principal by making a large down payment or by trading in your old car. It is also a good idea to only purchase the add-ons that you really want so that you don’t have to borrow as much money for things that seemed like a good idea at first but that you won’t ever use.
The longer the term of the loan, the more interest you will pay in the long run. It may be tempting to opt for the lower monthly payment, but it will cost more over the life of the loan. As long as you can afford the higher payments that come with shorter terms, that choice is in your financial best interest.
When discussing the terms of your loan with your dealer, make sure there is no penalty for early payments. That way, if you have extra money one month, you can make an extra payment. Making a regular habit of paying extra any time that you can cuts down on the interest you will pay over time.
Car loans are an added expense, but they don’t have to be a stressful one. By making a few changes in the way you pay off the loan, you can save quite a bit of money.