Negotiation Tactics for a Good Car Loan

There are a number of negotiation tactics you have for securing a better car loan. The majority of these tools are in the terms of the loan, which are the details about how the loan will be repaid over time. By adjusting these terms, you can ultimately get a better interest rate or a better overall deal on the car.

Know Your Goals Up Front

Lenders do not expect you to come to the table armed with the knowledge of the precise type of loan and terms you are looking for. Bring knowledge to the table by researching the following:

  • The best possible trade in price for your existing vehicle - Know the Kellye Blue Book and National Auto Dealers Association price. You may also consider approaching used car dealers to get an idea of the value.
  • Competitive interest rates at the current time - You should know the national prime interest rate at the time you are applying. Getting loan quotes from a few quick quote lenders will also give you an idea of the interest rate you can expect.
  • Ultimate monthly payment goal - The price of your car will not affect your ability to afford it nearly as much as your monthly payment. Come in with an idea in your head of exactly how much you can afford each month. Working from this ultimate goal, arrange the terms appropriately.

Use Collateral and Down Payment on the Front End

Nearly all car loans are secured against the new automobile itself. This is not required, however, especially if you are taking the loan from an independent financial institution outside of the dealership. Banks and finance companies offer personal loans with no required collateral. Collateral typically keeps the cost of the loan down. However, if you are only in need of a small amount of funds in order to purchase the car, it may be better to seek an unsecured loan so you are taking on less risk in the loan.

The down payment on a car loan is typically provided through the trade-in value of another vehicle. If this down payment is low, the limits of the loan will be high, making it more expensive over time. Saving some cash for a down payment in addition to your trade in will decrease the size of your loan and make it more affordable.

Modify Monthly Payments to Decrease Length of Loan

Making large monthly payments will traditionally get you a much better deal on your car loan. By budgeting your expenses, you can afford a higher payment toward your car loan each month. Lenders will reward this with lower rates.

Higher monthly payments and shorter loans typically go hand in hand. One problem here will potentially be unfavorable loan terms. The lender may be wary you will agree to high monthly payments on a short loan to capture low interest rates in the beginning then modify later. If you do not intend on doing this, offer to lock in the terms and do not be concerned with fees for modification in the future.


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