Interest rates on car loans have never been so low as they are now. That being said, all indications are rates will be going up in the near future as the Federal Reserve start pumping up interest rates in general. Now is the time to lock in low interest rates if at all possible.
Many people don't pay particular attention to interest rates on car loans when they buy for the simple reason they are fixated on the car in question. This is a rather obvious mistake because even small changes in an interest rate can save you a lot of money over the length of a loan. If you save $50 a month on a loan by bargaining for it, that equates to a savings of $3,000 on a five year loan. This is the kind of savings that certainly is worth the effort of making.
So, how can you lower interest rates on your car loan? Well, the first step is obvious. You should shop the loan to as many lenders as you reasonably can. Unlike home loans, you tend to get a pretty good range of quotes from different lenders. They can range by a point or more depending on your credit situation. Try it and you'll be surprised by how different the offers are.
The second strategy is to buy down your interest rate. This is done by offering to pay points on the loan. A point is equal to one percent of the total loan value. If you are seeking a car loan for $25,000, a point would be $250. If you offer to pay points up front to the lender, they will lower your interest rate.
This approach has two benefits. The first is some lenders will view you as less of a risk and will thus be willing to lower the rate enough that you save significantly on interest payments over the life of the loan. The second benefit is your monthly payments should be reduced as well. While this won't save you money per se, it will give you some cash flow relief each month.
You should always aim for a low interest rate on your credit obligations. Interest payments can add up quickly over time, so even small savings can amount to major savings. Make sure to run the numbers with a calculator to see just how much you can save.
