Buying a car can be an intimidating experience. Even if you’ve found a great used car and are ready to purchase it, there’s a lot to know – especially about the financing process.
Some car dealerships prey on the complexity of the financing process to line their own pockets – these unsavory types will offer you unnecessary extras, present you with high APRs, and use complex, confusing terms to try to get their hands on your cash.
But you don’t need to worry! With this simple guide on negotiating car loans, you can be armed with all of the tools you need to negotiate a great rate on a car – even if you have bad credit. Read on to learn our 5 tips on how to negotiate an awesome rate on your next car loan.
1. Always Negotiate The Price – Not Just The Payments
This is key when negotiating a great rate on a car loan. Many car salesmen will constantly talk about monthly payments – and will often try to negotiate a low monthly rate with a longer term of repayment – and a higher APR.
Now, a low monthly rate can be a good thing – but you shouldn’t just negotiate your monthly payments. Instead, you should be negotiating the true price of the car. Often, a lower monthly payment is just the result of a longer loan term – and that doesn’t save you any money.
So start by negotiating the price of the actual car. If you manage to secure a lower overall price, your monthly payments will also be lower – and that’s a win-win!
2. Keep Your Loan Term Short
Ideally, you should choose the shortest-term loan that you can afford. The longer your loan term goes on, the more interest you’ll have to pay – which leads to more wasted money, and a higher overall cost of purchase.
You should try to negotiate a term that’s as short as possible. Here’s an example of how this is beneficial.
Say you buy a used car that’s worth $10,000, and you put no money down. You get a loan for 60 months at an 8% APR. Your payment will be about $202.76 a month, and you’ll pay $2165 in interest over the length of the term.
Now, consider the same scenario – but with a 36-month loan. You’ll have a higher monthly payment of $313.36, but over the length of the term, you’ll pay only ⅔ of the interest – around $1281.
So you should always choose the shortest loan term possible for your financial situation. If you do, and you’re able to manage a higher monthly payment, you’ll save quite a bit of money in the long run.
3. Choose A High Down Payment
Paying a significant percentage of a car’s value as a down payment is a great idea – and can lower your overall loan rate. This may seem counterintuitive – so let’s take a look at why this is the case, using the same example as above.
So, in the above scenario, you took out an 8% APR loan on a $10,000 car with 0 money down, and ended up paying a total of $1,1281.09 with a $313.36 monthly payment. Not bad, right? Well, let’s take a look at how these numbers change when we choose a high down payment – say, 25%.
So now you buy the same car – same APR, same loan terms, same value – but put down $2500 in cash as your down payment. And that reduces the overall costs significantly.
Monthly payments are down to $235.02 – much lower than the $313.36 above – and the overall total cost of your car is reduced to $10,960.82. Your monthly payments are more manageable, and you’ll save nearly $400 over the lifetime of the loan – just by putting down a 25% down payment.
The bottom line is this. If you have the money, you should put down the largest down payment possible, and negotiate a short-term car loan. Doing so will save you the maximum amount of money possible, and secure you a great rate on your loan.
4. Skip The Extras
Your dealer will probably try to sell you things like rustproofing, gap insurance, paint protection, fabric protection, car alarms, VIN etching, and plenty of other services. These things aren’t necessarily bad – but dealers usually mark up their services quite a bit.
For example, their idea of “fabric protection” may simply be getting an employee to go over your car with some Scotch-Guard – and making you pay $300 for it. It’s almost never worth investing in these extra services – especially if you’re buying a used car.
Keeping your loan rate low means reducing cost – and these costs are totally unnecessary. Even if a salesperson is insistent, politely refuse. They’ll give in eventually.
5. High Interest Loans? Just Say “No!”
Your credit rating is the primary determining factor when it comes to getting a good interest rate.
If you have an excellent FICO score of 780 or more, you may qualify for a single-digit APR loan. Average credit loans are usually around 10%, and people with bad credit (a score of 600 or less) will usually be offered loans that exceed a 13% APR.
Even if you have bad credit, don’t take a loan in excess of 13% APR. You will get a very bad rate on your loan, and will probably have difficulty making payments due to the high interest rates.
Even people with bad credit can negotiate decent rates on their car loans. Shop around at different lenders to see what rates they can offer, or get pre-approved for a loan at your local credit union or bank. Doing so can give you an advantage when negotiating your interest rate – even if you have bad credit.
Follow These Five Steps To Car Loan Success!
These 5 quick and easy tips for negotiating your car loan are sure to help you secure a great rate. Whether you have good credit, average credit, or even bad credit, following our advice is sure to help you secure an ideal rate on your car loan – and save you money.
And if you have bad credit in Canada, and are looking for a great deal on a fantastic used car, check out Ride Time! We offer nationwide delivery of your car from our facility in Winnipeg – and have a gigantic selection of high-quality used cars.
No matter your credit, we can guarantee you a superb rate on an auto loan if you have a valid Canadian driver’s licence, a $1,500/month take-home income before deductions, and have been employed for 3 months or more.
So come to Ride Time – and work with our financial specialists to secure a fantastic deal on a great used car.