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How Does LendingTree Get Paid?

LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

5 Ways to Get a Smaller Car Loan

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Content was accurate at the time of publication.

Buying a car can be expensive — especially if you don’t have the money to purchase the vehicle outright. However, that doesn’t mean that you have to take out a huge auto loan. Small car loans do exist. Plus, as a borrower, there are things you can do to keep your costs of financing a car low. With that in mind, here are five ways to finance as little as possible on your next car purchase.

The easiest way to reduce the size of your auto loan is to save up as much as you can for a down payment on your car. Making a large down payment allows you to borrow less and potentially pay any taxes and dealer fees up front. Put simply, it reduces the overall amount you need to finance with a loan.

It isn’t difficult to save up, but it can take time — especially if you don’t have a lot of disposable income in your household budget. Still, even if you’re only able to put a small amount aside, your regular contributions will add up over time.

For example, if you can manage to save $100 per month, you’ll have saved $1,200 after one year. If you can put aside $200 per month, you’ll have $2,400 saved after 12 months. As a rule of thumb, the more you can save, the smaller your car loan will be.

Bigger down payments can help borrowers with bad credit

If you have a shaky credit history, bad-credit car loans are available. However, regardless of the type of loan, making a large down payment can help you get approved for an auto loan.

When weighing their approval decision, lenders consider your loan-to-value (LTV) ratio, or a measure of the value of the vehicle versus how much of the purchase price you intend to finance.

If you borrow less than what the car is worth because you’re making a large down payment, then your LTV will be lower. Lower LTVs present less risk for the lender, which can make them more likely to approve your application.

As a general rule, used cars are worth less than new ones, making them cheaper to buy. The less you spend on your vehicle, the smaller your car loan will ultimately be.

This is especially true if you can skip the dealership altogether. Buying from a private seller typically means lower prices than retailers, according to industry guide Kelley Blue Book. In other words, don’t discount buying a car on Craigslist, on eBay or from your neighbor.

If you go this route, do some research into the fair market value for the vehicle before you make your interest known. Consulting industry guides like Kelley Blue Book or Edmunds can be a great place to start. Then, once you’ve connected with the seller, don’t be afraid to negotiate the car price itself. Sometimes a little haggling is all it takes to make small loans for cars a reality.

When you’re ready to finance your purchase, you may want to consider applying for a personal loan versus an auto loan. Unfortunately, not all lenders offer private-party auto loans, or loans to independent sellers. However, even if they do, most lenders have a minimum amount you must borrow in order to take out a car loan, which can inflate the cost of borrowing. While personal loans also have minimum loan amounts, small personal loans are more commonly available.

Shopping around for an auto loan can also help you save. Different lenders may offer different interest rates, so it’s a good idea to gather multiple loan offers before applying.

Securing lower auto loan rates won’t directly lead to a smaller car loan, but it will reduce the amount of money you pay for your loan overall. To get a sense of how much you can expect to spend, use our auto loan calculator to test out various interest rates and loan terms. Make sure to play around with the numbers based on your credit score to get the most accurate estimate.

You may also want to consider getting an auto loan preapproval before visiting the car dealership. Dealers can sometimes charge higher interest rates to pad their profit margins. However, if you already have an offer in writing, it will be much more difficult for them to artificially inflate your rate.

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A smaller car loan can mean different things to different people. For some, it means securing the lowest monthly payment possible. For others, the goal is to find the shortest repayment term. Regardless of which camp you fall into, make sure to choose a loan term that suits your needs.

In general, a longer loan term will lower your monthly payment. However, be aware that you’ll also likely pay more in interest charges over the life of the loan. Meanwhile, selecting a shorter loan term will likely raise your monthly payment, but you’ll get out of debt sooner and pay less interest overall.

While all new and used cars come with a base price, the costs can skyrocket when you consider adding special features, like upgraded interiors, heated steering wheels or remote start capability, to your financing package. While these features are undoubtedly nice to have, they’re not a necessary part of getting around.

Small car loans can quickly turn into larger ones once you start adding on upgrades. Choose a base model to keep your car loan as small as possible. Plus, keep in mind that you can usually add on additional features after you purchase the car, too. If you have more money to spend in the future, you can always revisit the idea of customizing your vehicle further.