How to Negotiate an Auto Loan
Buying a car can be a complicated and lengthy process and by the time you’ve found the right car for you, the last thing you want to do is negotiate with the dealership’s finance team or a lender. But, if you’re not careful, you may end up spending thousands of dollars more for the car than you need to.
While there are certain limitations, it’s actually possible to negotiate the rate and terms of an auto loan with dealers and lenders. Here’s how.
Be prepared: Before you start shopping around for a vehicle, it’s important that you evaluate your financial situation. Know what your credit score is and how much you can afford towards the car loan. Don’t forget to factor in costs like insurance, fuel charges, and maintenance and repair costs as well.
Make a large down payment: The more you borrow, the more the lender stands to lose if you default on your payments. That’s why it makes sense to make a large down payment. Not only will you reduce how much you have to borrow but you may also qualify for a lower rate when you do this.
Opt for a short term: Lenders typically charge lower interest rates for short-term loans because there’s a lesser chance of you defaulting on, let’s say, a 2-year loan in comparison to a 5-year loan. So, keep the loan term as short as you can – the only caveat is that you’ll need to budget for an increased monthly payment. But, given how much you’ll save in interest, this is something you should really consider doing.
Get a co-signer: If you have bad credit, your lender will charge you a higher-than-average rate. This is because they don’t want to lose money if you stop making your payments. While you may not be able to improve your credit score enough to get a substantial reduction in the interest rate offered, you can apply for the loan with a cosigner who has a decent credit score.