Low Interest Auto Loans
If you’re planning to buy a car, you’ll want to carefully consider your options to get the lowest interest rate possible. Even $5000 auto loans‘ interest can add up fast if your rate is too high.
Before you start car shopping, check your credit history. Make sure your credit reports are accurate, and correct any mistakes before you seek financing. This can improve your credit score and help you secure a lower interest rate. If you have enough time before you need to buy a car, you can improve your score by repaying any unpaid bills.
One possible option is to use a home equity line of credit or a home equity loan. These loans offer a lower interest rate than a car loan because they are secured against the value of your house. For these two options, a home equity line of credit typically offers a lower initial interest rate, but they can fluctuate with interest rate changes. If you are considering a shorter term, such as 3 years, this might be your better choice, but if you are seeking a longer loan, a fixed interest rate loan through a home equity loan might better. They both offer the added bonus of deducting the interest on your income tax, which a car loan doesn’t. Of course, there are risks; you are using your house as collateral, and if you default on the loan, you may be forced to sell your home. Also, consult a tax advisor about your individual tax situation.
If a home equity loan isn’t for you, try to get pre-approved through a bank before car shopping. Depending on your credit history, banks usually will offer a more attractive interest rate than a car dealer, and this way, you’ll know how much you can afford before you get on the car lot.
Also, car dealers often try to explain a loan in terms of your monthly payment, rather than the interest rate. This gives them the room to increase the interest rate to match the amount of payment you can afford.
Finally, leasing can sometimes provide a good alternative to purchasing because lease payments are often lower than loan payments. Be sure you understand the terms of the lease, such as mileage allowances and purchase price at the end of the term, should you choose to buy the car then. The downside is that you have no equity at lease end.