If you could have any car, what would it be? Most everyone has a dream car in their mind. In fact, many people have several dream cars in their minds!
The beauty of dream cars is people don’t pay for dreams. When it comes to their real car, they often dream of low monthly car payments. This is smart because you don’t want to overextend your finances on your car.
You are not at the mercy of car manufacturers or automobile dealers when it comes to your car payment. There are some things you can do to work toward getting the lowest monthly car payment.
Not sure how to accomplish this? Keep reading and you’ll find out everything you need to know.
Looking at Your Financial Realities
Your motivation for wanting lower monthly car payments is admirable. The first step is for you to look at your own finances before you look for a car. You want to take an honest assessment of where you are financially before you shop.
Credit Score
Car loan terms are not based on the car or the amount but they are based on your credit score. The higher your credit score, the lower your interest rate will be on average.
Check your credit report to see what is on there. If you have missed any payments on other loans, it could hurt you. You also want to make sure there are no mistakes listed out on your credit report.
If you have something listed in the report that isn’t true, you can appeal and have it taken off. This will improve your score and your interest rate. A small increase in your credit score will save you money on your car payments.
You should be able to get a free credit report showing your score each year. You only have to pay if you want additional reports within that year.
Best Tips Before You Shop
Think about what you need in a car before you buy it. Too many people go and look at cars and get their hearts set on a specific car. This is a problem if it is a car that is out of their budget.
Think about some of the details you want in a car before you go shopping for one. Here are a few common things to think through:
- Space – Do you have a family or just you and your dog?
- Gas mileage – Do you drive a lot? This could help you save money
- Time frame – How long do you want the loan to be?
- Limit – What is the highest total payment you could afford?
These are just a few of the questions that can help you have an idea of what you are looking for before you go shopping. This can keep you from falling in love with the wrong car that you later regret buying.
You also want to think about your motives. Do you want a car to drive or to impress other people? Being clear on your motives can protect you from being talked into the wrong car for you.
You could even consider having a friend accompany you car shopping. You can share with them all the important details of what you need and your budget.
They can provide a voice of reason when you are sitting in a lot looking at a car!
Down Payment
The more you can put down upfront on a car, the lower your payments will be every month. If you are trading in your vehicle, see if you can also add some cash to help bring the payment down.
If you add an extra $500 or $1,000 with your trade-in, you will see a difference in your monthly payment.
Some people prefer to sell their vehicle themselves instead of trading it in. This can be a way to get more cash before you buy a car. However, if you have a loan on your current car, make sure you get enough to pay it off.
Type of Car to Purchase
Aside from thinking about what you need a car for, you also want to think about what type of car to get: new or used.
New Car
New cars are higher in price, but they do have some options for you to consider. If you are the type of person who buys a car and holds onto it for a long time, new might be best.
New cars often have special financing options that could be beneficial to you. Many times there are discounts and rebates offered for new cars that you could take advantage of.
Many new cars will come with warranties and even free servicing for a specific number of miles. The cost of a new car is higher, but some of these benefits could help you have a lower car monthly payment.
Used Car
There are many used car options out there. Even a car that is lightly used can come at a significant discount. Some dealerships will even offer special warranties on their used vehicles.
Don’t be afraid to look at reviews of used cars and how they are holding up for people. The benefit of used cars is there should be some information out there about how it is performing for others.
When looking at used cars, make sure to get all the information on the vehicle. See if the dealer will give you a car report showing the history of the car. You also want to look at the reputation of the dealer in the community.
The Leasing Option
One of the reasons you want to do your homework upfront is to also see if leasing is a good option for you. Leases are not like car loans because you will not own the car at the end of the lease.
This is a benefit for some people because the monthly payment is often less than if they bought the car. If you have a hard time getting approval for car loans, leasing could also be a help to you in building your credit.
People who lease also don’t have to pay taxes on the car itself, just on the car payment. This gives you a lower tax burden.
Personality has a lot to do if someone likes leasing or not. People who lease often want to drive a newer car. They also don’t like to mess with repairs so they give it back before it starts needing repairs.
Lease Buyout Options
Some people have used leasing to help them get out of an upside-down situation with their current car. They trade their current car in for the leased one and move their negative equity into their lease.
This is a more expensive solution, but you will end the negative equity that is hanging over your head. When you are done with the lease, the negative equity is paid off.
This is a cheaper way of ending the equity without adding it to another car loan. When you add negative equity to a car loan, you are often creating a cycle that is hard to get out of.
Tips for Low Monthly Car Payments
Aside from the vehicle itself, there are some specific things you can do to work a lower payment into your car loan. Add these to your toolbox of things to do when shopping for a car and you will save some serious cash.
Shop Around
Many times, you can shop around for your car loans. Some people may have been turned down by a bank and thought they just couldn’t get a loan. When you shop around, you’ll discover there are plenty of lenders out there for you.
Shopping around helps you because you are letting the dealers bid for your business. Dealers will often have lots of flexibility on loans and you want to take advantage of that.
Talk to multiple dealers and let them compete for your business. Be upfront and don’t hide your financial information. This helps you find the perfect deal to fit your car loan needs.
Car Loan Calculators
Take advantage of free car loan calculators. These are free online calculators that will often give you an estimate of your car loan. This can help you figure your budget out a little easier.
Hidden Fees
When talking to different dealerships about the loans, make sure to ask about hidden fees. Some dealers will give you a quote on a loan but leave out important things like taxes and fees.
When these get thrown in at the last minute, it could make your payment higher than you planned to pay. Be clear with them that the prices they are quoting you include everything so you don’t have any surprises.
Initial Quotes
What most dealers will give you at the beginning is an initial quote. The reason they do this is so it won’t hurt your credit score. Hard credit checks can bring your credit score down.
If you are talking to dealerships, make sure they are only giving you initial quotes upfront. Let them know that you don’t want a hard credit check. They can wait and pull that with your application.
You can also find online services that will take your basic information and let dealers near you compete for your business. This can take a lot of the work off you and put it on them.
Rate Shopping and Credit Scores
The good news is FICO is starting to recognize that if you get several car loan inquiries in a short time, you are rate shopping. They are making it where that won’t hurt your credit score if the inquiries are close together.
Time windows vary between companies. The older scoring models will give you a two-week window. The newer models will often give you a 45-day window for your credit checks to come through.
Longer Terms
Choosing a longer loan term can help reduce your monthly payment. Some terms can go up to 72 or 84 months. This does make the payment lower, but you need to know you will be paying more in interest.
When car loans are longer, there is the danger of becoming upside-down on your loan. This means that your car is worth less than the loan you have on the car.
The reason some car owners do this is to give themselves some cushion room. They will accept a higher payment to pay the car off sooner but have the lower payment in case a financial emergency comes up.
This is an option, but it does take a lot to discipline to do it. Extra payments will go a long way toward paying your loan off early, but not everyone has the discipline to make those extra payments.
Smart Work = Low Monthly Car Payments
Just a little bit of work on your part can pay off with you finding low monthly car payments. Taking the time upfront to do some homework and figure out what you want will help you stay smart.
It will also help you know what you are looking for when you go out and start looking for cars. Even if you have been rejected by a bank, there are plenty of great loan opportunities for your next car out there.
Carsfast.ca has helped many Canadians who have been shut out of the traditional car lending market. They have worked with dealers across Canada to help almost 16,000 people afford quality reliable transportation.
Contact them to let them get to work for you.