Find Alternative Finances for Your Auto Loan

If you're currently paying off an auto loan, you may be looking for ways to save money. Depending on the terms of your loan, your options may be limited. Learning how to find alternative finance options can help you work within your budget and pay off your vehicle.

Steps

Getting a Better Loan

1. Research the vehicle's cost. Before you decide on a Buy-a-Car, you should know its cost and the prices available at multiple dealerships. This can help you decide if the vehicle you're considering is within your price range, and you can then find the best offer in your region.
   • It's worth comparing multiple manufacturers, models, and dealers to get the best price for the car you want.
   • Check the Kelley Blue Book to get an estimate of the going price for that vehicle or vehicles. Then compare the prices at a number of dealerships to find the best selling price in your area.
   • Use an online auto loan calculator to figure out how much you'll need to finance the vehicle you want. You can find one by searching online, or try using the United States Automobile Association's auto loan calculator at: https://www.usaa.com/inet/pages/bank_loan_advanced_calculator_auto_page?akredirect=true
2. Check your credit score. Your credit score is comprised of your payment history (35%), amounts you've owed (30%), the length of your credit history (15%), how many different types of credit you have in use (10%), and how many account inquiries you've made (10%). It will also include a credit diagnosis and a summary of each line of credit you have open. Understand-Your-FICO-Credit-Score can help you negotiate better loan terms, instead of having to accept whatever loan offer you're given.
   • Your credit score can affect the amount of interest that you will have to pay on an auto loan. A poor credit score may result in a high interest rate, while a good credit score may result in a lower interest rate.
   • Make sure you know your credit score before you ever walk into a dealership.
   • You can learn your credit score for free by using online sources like Credit Karma, or get your free annual credit score through a major reporting agency like Equifax or Experian.
   • Visit AnnualCreditReport.com or call 1-877-322-8228 to find out more information.
3. Shop around for other quotes. Once you know your credit score, you can shop around for a better loan. It's best to do this before going to a dealership, as this gives you a better idea of what your options are.
   • You're not under any obligation to take the loan offer that the auto dealership gives you.
   • If you go to the dealership with other loan quotes, you may be able to negotiate for a better loan from the dealer. If not, you can simply turn down the dealer's loan and go with the better loan.
   • You can find loan offers through banks, local credit unions, or even an online lender. Just make sure you research the lender to ensure that they are a legitimate business with good terms and interest rates.
4. Know your options with bad credit. If you have bad credit, you may be worried about what your options are. Just because you have bad credit, it doesn't mean you have to take the first loan that you're offered. There are plenty of options available for you, if you're willing to shop around.
   • Most credit unions are local institutions that work within your community. Credit unions tend to offer more flexible payment plans and lower interest rates, even if you have bad credit.
   • You may also want to consider a peer-to-peer lending service like Lending Club. You can get a better interest rate, but the evaluation process is thorough, with only about 10% of applicants getting approved.
5. Evaluate a loan. Once you receive a loan offer, you'll want to look into the conditions of that loan and decide if it's right for you. There are plenty of aspects to consider, but the most important are the interest rate, the down payment requirement, and the term of the loan.
   • The interest rate is how much extra you'll be paying for taking out the loan, applied as an Calculate-Annual-Percentage-Rate. The term of the loan is how long you have to repay the loan, usually calculated in months.
   • Some lenders charge a prepayment penalty if you pay off your loan before the end of the loan term, as this loses the lender money in interest. For example, if you took out a 60-month loan but paid it off in 50 months, the lender loses the interest that would have accrued over the remaining 10 months, and may charge you a penalty.
   • It's worth comparing all aspects of the loan. A lower interest rate is good and may tempt you, but if it requires a higher downpayment and several extra months on the loan term, you may end up paying more.
6. Ask a friend/relative for a loan. If you're in a pinch, you can always ask a friend or family member for a loan. Financial issues can create a lot of tension between friends/relatives, so it's important to proceed with caution.
   • Ask politely and respectfully.
   • Say something like, "Could we work out an arrangement where I borrow $_____ from you? That way I could pay a lower interest rate than a bank would charge, and I can pay you back a higher interest rate than your money would have accrued in a savings account."
   • If your friend/relative is reluctant, you can always offer to put your vehicle up as collateral. But if you do so, be aware that you'll need to pay back the loan or your friend may actually take your vehicle.
   • Savings accounts usually offer interest rates below 5%. Offering your friend/relative an interest rate on the loan around 5% to 6% would be fair and beneficial to everyone.
   • Determine how long it will take you to repay the loan, and work out a reasonable repayment schedule with your friend/relative.
   • Put the agreement in writing, including the repayment schedule, and sign it to make it a binding promissory note.

Refinancing an Existing Loan

1. Assess whether refinancing would help. Depending on your situation, refinancing may be a wonderful option. It can help you get a better loan, but it may only be worth it if certain circumstances have changed since you took out your existing loan.
   • If interest rates have dropped by more than a few points, it may be worth refinancing your loan.
   • If you've improved your credit score since you took out your loan, refinancing will most likely help you get a better loan.
   • If your personal financial situation has gone downhill and you need to lower your payments, refinancing can help you get a better monthly rate.
2. Find out if you're eligible to refinance. There are certain restrictions and limitations to refinancing. Not everyone qualifies for a refinanced loan. In order to decide if you're eligible, a financial institution will evaluate your financial situation, the terms of your existing loan, and/or your vehicle.
   • You will typically need a 6 to 12 month history of on-time loan payments to qualify.
   • Check to see if there are any prepayment penalties on your existing loan. If there are, you'll have to pay that penalty should you choose to refinance.
   • If your vehicle is past a certain age or if your existing loan is outside a predetermined range (set by the financial institution), you may not be eligible to refinance your loan.
3. Get the best refinance offer. Once you've made the decision to refinance and you know that you're eligible, you'll want to shop around to find the best offer. This should require just as much investigative work on your end as you would put into getting a new loan, so be sure you assess all of your available options.
   • Check with numerous lenders to find the best interest rate that you qualify for.
   • During the application process, if you choose "auto pay" for your repayment options, you may get the lowest possible interest rate.
   • If you're able to pay the new loan off sooner, it may be worth shortening the term of the new loan you receive. This will help you save money on interest rates.

Tips

• Be sure to know your options and shop around before you agree to any loan. That includes refinanced loans as well as new loans.

Related Articles

• Get Out of a Car Loan
• Calculate Total Interest Paid on a Car Loan
• Buy a Car That Money Is Owed On
• Buy or Lease a Car when You Have Bad Credit
• Calculate a Lease Payment

References

See also

• Apply for a Used Car Loan
• Redeem Your Repossessed Car
• Transfer a Car Lease
• Get Your Ex Off a Car Loan
• Get a Car Loan While in the Military
• Compare Car Loan Rates
• Buy a Car with Bad Credit
• Finance a Car
• Negotiate an Interest Rate on a Lease Buy Out Car Loan
• Make your New Car Tax Deductible using a Home Equity Loan

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