There are things you should do and things you shouldn't when it comes to lowering your monthly car loan payment. In this section, we offer helpful money saving tips to make your car loan more affordable, the right way.
Avoid drowning in car debt with these helpful money saving tips
Reconsider longer term loansToday, more and more car buyers are taking out longer loans — over six or seven years versus the normal three to five years — to reduce their monthly car payments. You might want to reconsider longer term loans since they can be riskier, including higher interest rates, more interest paid over the life of the loan, and less paid on the principal balance which could end up costing you more than the car is worth.
Get pre-approvedWhen it comes to buying a car, your best bet is to get pre-approved for a loan before you go shopping. Not only can you lock in low rates before they have a chance to increase, you can use the offers you receive as a negotiation tool with the dealership, if its rates are higher. What's more, it's good practice to focus on getting the best possible sales price for a car first, and then discussing financing with the dealer later. Getting pre-qualified for a loan helps you do just that.
Consider a home equity loanIf you qualify, there are advantages to using a home equity loan or a home equity line of credit (HELOC) to purchase a car. For starters, home equity loans usually come with lower interest rates than standard auto loans because they're borrowed against the equity in your home as collateral which drives down the interest costs. What's more, you might actually be able to deduct the payments if you itemize them on your federal tax return. Be sure to consult a tax advisor to determine if this is a smart approach for you.
A HELOC usually comes with the lowest rates but it's a riskier proposition. HELOC rates are variable which means you're stuck with a higher monthly payment should interest rates increase. While a HELOC makes sense for loan terms of 36 months or less, financing over 36 months is better suited for fixed rate home equity loans.