Your Auto Loan Payment: Keeping it Low

Your auto loan payment will vary - either higher or lower - depending on a number of factors, many of which are in your control. You can work to keep your auto loan payment low by keeping your credit score high, shopping for low interest rates, choosing the right lender and adjusting the terms to fit your particular situation.

What Determines Your Loan Payment?

Your auto loan payment is determined by the following four factors:

  • amount borrowed - This will vary with every car buyer. Do you want a new car? A certified pre-owned? A lease return? Each choice affects the amount you pay.
  • amount paid down - Most loans require a down payment, and the amount will vary with the amount borrowed and your credit history.
  • length of the loan - Simply stated, the longer the period of the loan, the smaller your monthly payment. But don't be fooled, that doesn't mean you're paying less. It means there is a greater amount of time for the lender to collect interest. You are actually paying more.
  • interest rate - This is typically called the APR, or annual percentage rate. It is the charge to you for borrowing money. The higher the rate, the higher your payment.
The Lender Makes a Difference

Your choice of lender can impact the interest rate and therefore the size of your auto loan payment.

  • Auto Dealers - Dealers may have incentives such as low or no down payment auto loan financing.
  • Banks or Credit Unions - Typically, banks and credit have greater flexibility with interest rates and with dealing with your credit history.
  • Private Borrowing - Used cars often are sold in private party sales, and the seller may offer to personally finance the purchase. You have the greatest flexibility in negotiating with an individual, but private owner financing is rare.
Your Credit History is Key

If you don't know your credit score, you can access it free once each year from any one of the three main credit-scoring agencies. Be assured that any lender will know your credit score and credit history. You should know what they are seeing.

You can improve your credit score over time and should make every effort to do so. A good credit history is one of your best weapons in negotiating interest rates with a bank. Borrowers with lower credit scores pay higher interest rates than borrowers with better scores.

Borrow on Your Terms

Even if you can't affect your credit score right now, or if you have a great credit score, you still need to structure the loan to your best advantage to get a low auto loan payment.

The simplest factor to adjust is the time you are borrowing. Experts suggest not borrowing for more than five years, even if the lender will make that offer, because you are very likely to end up owing on a vehicle that is far past its prime. To lower your auto loan payment, lengthen the loan.

If you are in a good cash position, putting more money down will reduce your loan amount and as a result give you a lower auto loan payment.

Already mentioned is the role played by choosing the right lender and having a good credit score in helping you negotiate for the best interest rate. Be sure to shop rates. There are many places online where you can research current rates. In fact, most lenders post these online. You can also use online calculators to play with the various loan factors and find the auto loan payment that is right for you.


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