Advice on How to Negotiate Low Car Payments
Your ability to get a payment you can afford determines whether you're able to buy a new automobile. The interest rate on the vehicle loan impacts the car payment, so getting a low payment involves acquiring a low rate. Several factors can help you get the best rate possible on your next auto loan.
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Credit Risk
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A bad credit history or low credit score means you're more likely to default on an automobile loan. While this may not stop you from getting a vehicle loan, low credit scores and higher interest rates go hand-in-hand. Getting a lower rate and a low car payment requires reducing your credit risk and improving your credit score. Timely debt payments and reducing debt can help bring up your FICO rating.
Down Payments
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Down payments help bring down car payments in two ways. First, a down payment of 10 to 20 percent reduces the auto loan balance. Second, a down payment helps you negotiate a lower interest rate on the loan. If buying a car for $20,000, consider a 20 percent down payment of $4,000.
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Shopping Around
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Dealerships aren't the only potential providers of financing for your new vehicle loan. You have several options, including getting a loan from your bank or credit union. Dealerships are the middleman, and they often pad or increase interest rates to make money. Going directly to the bank can result in a cheaper rate and lower car payments.
Vehicle Loan Term
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Financing a car for two or three years helps you pay off the vehicle more quickly. Unfortunately, a short finance term also increases the monthly payment. If you're interested in keeping payments low and affordable, negotiate a longer vehicle term. Five-year terms are typical, but some finance companies eagerly extend vehicle loans to six or seven years. Bear in mind that you'll pay more interest with a longer-loan term, which increases the total cost of the car.
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