5 Strategies to Minimize Your Auto Loan Interest

Your auto loan interest can rise or fall depending on who your lender is and the risk they perceive that you represent. The following five strategies can help you get the most competitive rate available to you.

Consider the Source

Not all lenders are equal. When you borrow to buy a vehicle, you’ve got a choice as to whom you borrow from.

  • Dealers - In most cases, dealers will be higher-interest lenders. Even if they offer incentives such as low or no interest for an introductory period, the rate typically rises to an above-market level when the intro period ends. 

  • Banks - Almost all banks offer auto loans. Your interest rate will be a function of the car you want to buy, the down payment, the length of the loan, current market rates and your personal financial health or credit score.

  • Credit Unions - Almost anyone can join a credit union now, though formerly membership was more restrictive. Credit unions are not-for-profit institutions and can offer some of the most competitive rates.

Minimize your auto loan interest by finding the best lender.


Once you’ve selected the best lender for your personal financial situation, don’t be afraid to ask for lower rates. This is particularly effective if you have a good credit score, strong history of making other payments and demonstrated ability to pay this note.

Lenders want good borrowers. If you are a good borrower, that is a strength you can bargain with.

Increase Your Down Payment

Your auto loan interest rate also can be minimized by improving the loan-to-value ratio. Loan to value measures what percent of the car’s value your loan represents. For example, a $20,000 car bought with a $15,000 loan has a 75 percent loan-to-value ratio. The lower that ratio, the better chance you have of minimizing your auto loan interest.

Reduce the Payout Period

Although it is counter intuitive, the longer the payout period of a loan, the greater the risk the lender sees. You might think a longer loan would appeal to a lender because they are collecting interest longer. But in fact, lenders view a longer payout period as a longer time their money is at risk of your not paying it back. This is especially true of auto loans because the car decreases in value year by year making the loan-to-value ratio at the least static and at the worst larger.

A three- to five-year auto loan can help you negotiate for lower rates.

Other Options

A good credit score is one of your greatest strengths in trying to minimize your auto loan interest. If you have it, good. If not, you can get it over time by first getting current on all loan payments and then by demonstrating over time that you can pay debts on time. It takes time, but it will pay off in lower interest rates on all your borrowing, including auto loan interest.

Finally, a co-signer with better credit standing than yours can effectively lower any auto loan interest you are offered.


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