How to Save Money on Your Car Loan
This post was sponsored by Gravity Lending and all opinions expressed in my post are my own.
After purchasing a home, a car is likely the most expensive item you’ll buy in your lifetime. Between the purchase price of the car, maintenance, repairs, and gas, owning a vehicle is a large expense in your monthly budget and every bit you can save helps in the long run! If you need to take out a loan to purchase your vehicle, check out these tips to help you save money on your car loan.
My husband and I usually buy a “new to us car” every 5 to 7 years so that we have one newer vehicle and one vehicle that’s a little bit older. It helps our budgeted expenses to only have one car payment at a time. Last fall, we really needed to buy another car. Our cars, at the time, were 15 and 7 years old. Plus, we had a teenage son who had started using the oldest vehicle for driving himself and his brother to school. It worked for my husband and me to share the newer car for a while, but since my husband was starting to work in person in his office again, we were getting desperate for a third vehicle.
Unfortunately, it was a tough time to buy a car with all the vehicle shortages, but we had been planning our purchase for a few years. We used these 9 ideas to help us save money when we bought our vehicle.
Choose a Car You Can Afford
The most important way to save money on your car loan is to choose a car that you can afford and works with your budget. If possible, pay cash for your car since that avoids all finance charges and interest.
However, many of us can’t quite manage to pay cash for a car (especially when we’re just getting started financially). If you need a loan, be sure to choose a car that works well overall with your budget. It’s easy to get car fever and end up picking a vehicle that’s newer or bigger than you can afford.
Check Your Credit Score
Before you head out to the dealership, make sure you check your credit score. Check your financial institution’s website to see if you can check your credit score for free. I can check my credit score on 2 of our credit card accounts as well as a money market account. You can also open a free account at Credit Karma to check your credit score.
Improve Your Credit Score
If your credit score is on the lower end, you’ll end up paying a higher interest rate (which will cost you more money in interest throughout your loan). You can check your credit report for free each year for any inaccuracies that you can dispute, to see which accounts are potentially past due and causing your lower credit score. You can also pay down revolving credit (like credit cards) to lower your credit utilization percentage.
Shop Around for Your Car Loan
You don’t want to visit the dealership without a plan for your auto loan. Instead, shop around online for the best interest rate for your loan. If you rely on the dealership, you’ll likely pay a lot more than if you already have things figured out on your own.
Get a Shorter Loan Term Car Loan
Many dealerships will try to get you to name a monthly payment that you can afford and then work around that by extending the loan term to 60 months (5 years) or even as long as 84 months (7 years!). The longer the auto loan term, the more you’ll pay in interest over the life of the loan. Plus, you’ll have to worry about being upside down on your loan (and needing GAP insurance, which adds even more cost to the car).
Use an auto finance calculator to figure out on your own what total price you can afford before you even enter the dealership and work the math on what the payment would be for a 36 month or even 42-month loan rather than for longer terms.
Save a Large Down Payment for the Vehicle
If you can save the cash, the larger the down payment you can make on the vehicle the better! Every dollar you pay upfront is money you don’t have to pay back with interest. Plus, the more equity you have in your vehicle, the less chance that you’ll be upside down (which means you owe more than what the vehicle is worth) on your purchase.
Refinance Your Car Loan to a Lower Interest Rate
If you want to save money on your loan, you can refinance to get a lower interest rate and/or change the length of the loan. Gravity Lending is a great option to refinance your auto loan since they have competitive interest rates and do not charge for their services. On average, Gravity Lending clients save $134 a month on their loan ($2,846 overall). You can also use Gravity Lending to buy out a car lease.
Why Refinance Your Car Loan?
Maybe you financed your car at a dealership and ended up with a higher interest rate. Or perhaps your credit score wasn’t great when you initially purchased your car and you’ve improved your score since then. It’s likely worth checking into whether it’s worth it to refinance your car loan.
Why Refinance with Gravity Lending?
Gravity Lending was founded in 2015 and the leadership team has over 100 years of lending experience combined. Gravity Lending has funded over $7 billion in loans and is the highest-rated auto refinance company in the market (with an A+ Better Business Bureau Rating).
Gravity Lending does not charge for their services, and you may have up to 90 days before your first payment is due.
How Does the Refinance Process with Gravity Lending Work?
The process to refinance your car loan with Gravity Lending is super easy. You can apply securely in minutes from anywhere using your phone, a computer, or tablet to upload and sign documents. Gravity Lending works with a nationwide lender network, and they can pre qualify you without affecting your credit with a hard inquiry.
Gravity Lending will get loan offers from multiple lenders nationwide, and you’ll work with a dedicated loan officer who will guide you through the process. They work to find the best rates (as low as 1.99%) and loans fund in as little as 5 days.
You can visit the Gravity Lending website to get started on your refinance. You can also follow Gravity Lending on Facebook, Instagram, or Twitter.
Make Extra Payments
The faster you can pay off your car loan, the less interest you’ll pay over the life of the loan. There are several ways that you can pay your car off faster:
Round-Up Payments
When you make your payment each month, round the total up to the next hundred (or even ten or fifty if you can’t afford the full hundred). So, for example, if your payment is $326 per month, you’d round it up and pay $400 each month.
Make sure that the extra amount is going directly to the principal rather than just extending your future due date by checking with your lender. We had to send any extra payments to the principal to a separate address on our last loan. So, I ended up lumping together the rounded-up amounts together and sending a separate check every few months.
Biweekly Payments
If your auto loan servicer will allow it, you can cut your payment in half and make payments every two weeks. With this method, you’ll make one extra monthly payment a year (since you would make 26 payments over a year).
Sell Your Car and Buy a Less Expensive One
If you bought more vehicle than you can afford or your financial situation has changed and you can’t refinance, you can try to sell the car and buy a less expensive vehicle. In a normal market, if you don’t have enough equity, you may have to contribute extra money to make up the difference between what you owe and the sale price. You can either come up with that amount with extra savings or try to get a small personal loan. At least you’ll get rid of a payment that you can’t afford!
What about you? How do you save money on your car loan? Have you ever tried refinancing your loan with a company like Gravity Lending?