How to Lower Your Auto Loan Interest Rate
The interest rate on an auto loan can have a significant effect on the total cost of financing. Even a modest difference in APR can matter when borrowing tens of thousands of dollars.
Improve Your Credit Profile
Lenders commonly consider credit history when evaluating an auto loan application.
Review your credit information before shopping for a vehicle and address inaccurate information when possible.
Strong credit does not guarantee a particular rate, but it can improve the financing options available to some borrowers.
Shop Multiple Lenders
Do not assume that the first financing offer is the best available option.
Consider comparing offers from banks, credit unions and other lenders.
When comparing offers, look at the complete financing terms rather than only the monthly payment.
Consider a Shorter Loan Term
Loan term and APR are separate factors, but a shorter term can reduce the total interest paid because the balance is repaid more quickly.
A shorter term usually produces a higher monthly payment, so make sure the payment fits your budget.
Make a Larger Down Payment
A larger down payment reduces the amount financed.
Although it does not necessarily reduce the quoted APR, borrowing less money can reduce the total interest paid.
Get Preapproved
Getting financing information before visiting a dealership can give you a useful benchmark.
A preapproval can help you understand your estimated rate and maximum loan amount before negotiating the vehicle purchase.
Compare Promotional Financing
Manufacturers sometimes offer special financing programs on selected vehicles.
These offers may have specific eligibility requirements, vehicle restrictions or term limitations.
Be Careful With Very Long Loan Terms
A longer loan can make the monthly payment appear more affordable, but it can increase the total amount of interest paid.
Always compare total payments as well as the monthly amount.
Calculate the Difference in APR
Use our car loan calculator to compare different APR scenarios.
For example, compare 5%, 7% and 9% APR using the same amount financed and loan term. This illustrates how interest rate changes can affect the estimated payment and total interest.
Final Thoughts
The best way to reduce financing costs is to compare actual offers and understand every component of the loan. Credit profile, lender competition, amount financed and loan term can all influence the final cost.