How to Save Money on Auto Loans With Interest Rates Rising
Used car shoppers looking to purchase vehicles today have to contend with rising prices, limited inventory and higher loan payments. According to Experian, the average monthly payment in the first quarter of 2022 for a used vehicle was $503.
The June 14 Fed rate hike has further dampened car shoppers’ spirits. While auto loans are not expected to be greatly impacted by the rate hike because most are usually fixed-interest loans, lenders tend to increase their rates when the Fed rate changes. Used car loans usually have higher interest rates than new car loans because of the uncertainty of the value of the car. Lenders also see more used car borrowers defaulting on their auto loans than borrowers of new cars.
Although car experts advise buyers to wait to purchase and finance a car until prices come down, waiting may not be realistic for some. Here are some tips from Bankrate that can prepare car buyers who will need to get a loan for their used car purchase:
Beef up your savings
Prepare for your car purchase and loan application by saving as much as you can for a down payment. If you save even $100 a month, you could end up with thousands of dollars for a down payment on a used car.
Consider a trade-in
Used cars are in demand by dealers who cannot supply their lots quick enough with inventory. Trading in your current vehicle along with a saved down payment will help reduce a potential monthly loan payment on a newer vehicle. It is also more convenient to trade-in your car than to sell your car privately.
Apply for loan preapproval
An auto loan preapproval can lock down your expected monthly payment on your purchase. It gives you an advantage when it comes to negotiation. You can also use the preapproved rate when comparing other loan offers.
Do not sign off on the first deal you come across. Consider comparing at least three different loan offers when looking for vehicle financing. Know the difference financing with a dealer versus other lenders.
Only buy what you can afford
Make sure you purchase a vehicle that you can afford. Do the math to make sure you can make the monthly payments. Always prepare for a worst-case scenario.
Consider a used electric vehicle
Consider purchasing an EV. They may cost more now but can save you I the long run. Some states offer tax credits and green auto loans on eco-friendly vehicles.
When in the market for a used car, stop by Carousel Preowned. Carousel Preowned serving Iowa City, Cedar Rapids, Davenport, North Liberty, Marion, and Coralville, IA, is proud to be an automotive leader in our community. We do our best to ensure your complete satisfaction every time you step into our car dealership. This is why we offer the widest selection of used and pre-owned cars, trucks, and SUVs and provide true ease of purchase in Iowa.