If you want to buy a new car, but are afraid the monthly payments are going to be out of reach for the vehicle you want, you need a strategy. There are several approaches to take to get the lowest car payment, any one of which may work in your situation.
Maintain good credit. Finance experts say that the best interest rates are offered to people with good credit. If your credit score is low and you’ve been spotty in payment of bills or have other negative marks on your credit history, the first thing to do is begin to repair your credit. Start by paying off debt, paying all bills on time and avoid having too many credit inquiries (which dings your overall credit score).
Consider a hefty down payment. While finance companies don’t require a down payment in order to finance a vehicle, by giving the dealer a sizable down payment you reduce the total amount to be financed. That, in turn, reduces the amount of your monthly payment. What is a hefty down payment? Here experts say that if you can do so, put down 20 percent. If you don’t have that much now, save money for a few months until you have a reasonable amount to put down. Remember that any money you put down will cut the monthly car payment. Another benefit of a higher down payment is that this gives you negotiating power with the dealer over the price and possibly the interest rate.
Take a longer-loan term. Typical auto finance terms are three to four years. This results in paying off the loan quicker but it also means you’ll wind up paying more in monthly payments. If the monthly budget is an issue, you might want to go for a longer-term loan of five or six years--though we recommend nothing longer than five years.
Shop around. Before you set foot on the dealer lot, know where your financing will come from. Go online and comparison shop rates. Check out your local bank or credit union, especially financial institutions you already have a relationship with. Auto manufacturers also have finance arms that may have an attractive finance or lease deal. Finally, although they tend to have higher rates, dealers may offer their own financing.
What about used? Tallying up all the particulars, it may make more sense to buy a used vehicle of the make and model you really like. Used car financing is generally easier to obtain and the rates may be lower.
Buy at current price and refinance later. Still another strategy is to purchase your vehicle at the current price and make payments for a year. Then refinance at a lower rate, if possible. The caveat here is that you go back to the original finance company and, if you’ve been current with all your payments, you may be able to obtain a lower interest rate, thus reducing your monthly payment.
Use payment calculators. Are you curious to see how the down payment, loan term, interest rate and other factors affect the monthly payment? Try your financial institution's web page for a loan calculator that can help you see costs upfront--and to keep them in line.