Car Loan Interest, the Never-Ending Debt

Car loans are a necessity for most, because it provides you with the flexibility to finance a dependable ride. However, if you receive a loan with a high interest rate, it can make this option expensive, thereby leading to a higher monthly payment. Therefore, it’s important to follow these steps before getting a loan, as it can help you receive the best rates:

Check your credit

The best way to determine if you are a good candidate for credit is to check your score with all three bureaus. While there are many websites that say they can help you, the best approach is to ask each bureau personally, as you are entitled to a one free report from each annually. When you receive them, be sure to check and dispute any errors you may find. By knowing your credit score, it can help you prepare for the kind of rates you may receive. It may also give you pause to hold off on the purchase if your score is low and you want to improve it before financing.

Comparison shop for rates

If you apply for financing at a dealership, it’s likely they will do this for you. However, if you want to receive financing before stopping by, you should compare rates from different lenders in your area. One of the best ways to go is credit unions, as they offer lower rates than banks. It’s important to note that credit unions do have membership qualifications that may include employer, county of residence or other factors, so be sure to see if you qualify.

Meanwhile, if you have a car loan and want to settle your debts quicker, you can try to refinance it. Here are a few ways to do this:

Ask your lender for lower rates

If you have been making your payments on time, then contact your lender and see if you can do a refinance through them. In many instances, they will be happy to accommodate you because they want to keep you as a customer. If they are able to refinance it, then you will receive a lower interest rate, which will result in a lower monthly payment. Now it’s important to note that in some cases, a refinance may extend your loan. Therefore, be sure to understand the terms before agreeing to them.

Shop around for better rates

Much like you would do when financing a car purchase, you can shop around to see if lenders can give you rates that are more favorable. Before doing this, be sure to know how much you owe on your loan, its interest rate and whether there are prepayment penalties. Additionally, be sure to know the value of your car because banks will factor this in when determining whether they want to approve your loan. You can use a site like Kelley Blue Book to gain a ballpark estimate of what your car’s value is.

For many, financing a car is the best way to ensure they receive a dependable ride. If you decide to do this, be sure to check your credit and shop around for the best rates. If you have a car loan and want better terms, ask your lender to see if they can make any concessions for you. By doing these, it may help you receive a low interest rate, which can free up cash quicker and help you pay off your loan faster.

Jeffery Sterner blogs about personal finance, and debt management for America’s Debt Help Organization—Debt.org.