Save Money on Your Car Loan With Bi-weekly Payments
Cars have been a necessity for a long time. However, not everyone can afford to buy the vehicle they want in cash. Fortunately, there are commercial lenders that are willing to offer car loans. Nowadays, there are a lot of them in the business. In fact, they compete with each other to win over consumers. With this, individuals who can afford the repayment terms will be able to secure funds for a down payment.
If consumers do their homework, there are many ways that they can cut down on their auto loans. They can save hundreds of dollars without compromising the type of vehicle they want to drive. All they need is careful planning, some comparison price shopping and persistence in order to find the best deals.
Borrowers with good credit can take advantage of the low interest rates and favorable financing terms. Conversely, those who have a pile of credit card bills and mortgage bills can’t escape the hefty interest rates and fees. Their only solution is to negotiate the best deal possible.
Buying a Car
- Determine how much is needed. Before buyers choose which lender to take out a car loan with, they should first determine how much they need to borrow. In order to do so, they basically have to know what type of vehicle they want and its price. Moreover, they must know how much they can afford. Experts recommend borrowing an amount that consumers can conveniently pay over a three year period. Most importantly, they must assess their financial capabilities and determine if they can afford the repayment amount.
- Look for lenders. The next thing to do is to look for lenders that offer automobile financing. Most commercial lenders do not guarantee consumers a rate until they finally sign the contract. However, they will give the borrower a pre-approval loan amount and the existing interest rate. It is always best to start with banks although they are less likely to approve car financing applications fast. Credit unions could be the second best option. Otherwise, consumers can go for conventional lenders. Either way, potential borrowers should ask about the interest rates and automatic payments. Some banks may accommodate borrowers who opt for an automatic draft.
- Find a car and negotiate. Consumers should take time looking for cars that match their financial capacity. There are a lot of dealers out there today both online and offline. The best deals are almost always offered over the Internet. Consumers need to check the vehicle personally and get a professional mechanic to do a thorough inspection. With this, they will know if the automobile has been in accidents or hides other concealed troubles. Consumers must understand that buying a new or used vehicle is a very different process. Finally, they should negotiate the price with the vendor.
- Pay for the car. During the payment process, consumers have to contact their lender or the bank and secure the final details. Typically, lenders will ask for the vehicle identification number or the title before they can process the loan.
Saving on the Car Loan
The best way to save on a auto loan is to pay it early. It may be challenging, but it definitely works to the consumers’ advantage. This is especially true when it is done right. If not, buyers may end up spending more in the long run. Reconciling the the borrowed money early has many benefits.
- Eliminate debt. One of the main reasons for repaying the loan early is to eliminate debt. Generally, average people struggle to make ends meet every day. If they do not handle it properly, they can easily end up with a debt problem. Eliminating a debt or monthly charge will lift a bit of weight off their shoulders. If they eliminate monthly charges, they can enjoy the extra funds.
- Avoid the interest rates. It is an undeniable fact that a large part of the amount paid every month for a financed car goes to interest. Reconciling the debt early could help buyers save thousands of dollars from the interest rates and charges that come with delayed payments. However, borrowers have to avoid paying off the car with another loan that comes with higher interest. They may avoid the interest of the original loan but not the interest that comes from other car financing used to cover it up.
- Improve credit scores. Eliminating a financed car can significantly improve credit score. Individuals with good credit scores will easily be able to secure financing in the future. In addition, people may also improve their credit score if they make installments on time every month.
- Save on insurance premiums. Consumers who want to buy a new vehicle will most likely have expensive insurance premiums. If the vehicle gets damaged and they have no collision coverage, the borrower can suffer a financially devastating situation. They may have to cover the loan from their own pocket and get a new vehicle.
Ways to Pay the Car Off Early
- Making extra payments. Borrowers may pay at least $100 extra on their monthly installment. The additional funds go directly to the principal loan. With this, they can eliminate the debt faster.
- Utilize tax refunds. During tax time every year, many people get extra funds that can range from hundreds to thousands of dollars. Rather than spending it on other things, it is best to put it towards their auto financing. The amount may be big enough to be deducted from the principal.
- Go for a bi-weekly schedule. Making installments once a month can be difficult to keep up with. With this, many industry experts recommend the bi-weekly option instead. Doing so allows them to cut their monthly installment into two and pay it every other week. Although the total monthly charge remains the same, it allows borrowers to settle the borrowed funds early. In addition, they will make the equivalent to one extra payment every year. More money goes to the principal loan every month to significantly reduce the overall balance.
Opting for the Bi-Weekly Schedule
Generally, auto dealers set loan schedules on a monthly basis. However, consumers who know how to negotiate with them can end up getting a bi-weekly schedule. With this, consumers will be able to earn a lot from the interest. This can mean big savings for the borrowers. However, they have to make sure that the lender offers this type of schedule, and they should find out about prepayment penalties in advance.
It is important that buyers understand how bi-weekly plans work before they go for them. Lenders usually split each installment between the interest and principal. Borrowers fund more in interest at the start. The interest eventually goes down as the principal amount is reduced. There are many bi-weekly loan calculators today that can help borrowers determine how much they might be spending every other week based on their total financed amount and current interest rates. Bi-weekly financing is always a good option. However, they may not work best for people who are on a tight budget.
Avoiding the Bi-Weekly Scam
There are many lenders that trick consumers with their bi-weekly payment schemes. They encourage customers with their sales pitches regarding the benefits of bi-weekly schedules. However, customers end up being charged prepayment fees or penalties that come with early loan completion. With this, it is important that customers take time to read the fine print on the lender’s terms and conditions. Those who opt for a bi-weekly schedule should avoid companies that impose prepayment penalties. Rather than saving money, they will likely be subject to hefty charges simply because they have paid off their debt before the term.
Other Scams on Auto Loans
First time car buyers are often a target for scammers. Some lenders take advantage of the consumer’s ignorance of the market. With this, many consumers spend much more than what they should in securing financing. This is especially true for those who have no or questionable credit.
Lenders may tell these potential borrowers that they need more time to check on their credit file. The most common trick they use is to tell the applicant that they need some sort of extended warranty or add-on in order to qualify for financing. They deliver speeches that make the customer feel that they are more than pleased to approve them. Applicants should not be convinced by these tricks. Instead, they should already have a copy of their credit report on hand and present it as it is to get the real story.
Furthermore, there are some lenders that will reject auto loan applications and require applicants to get a co-signer. This is specifically true for those who have really bad credit. With this, applicants end up calling their parents or friends looking for a co-signer. Some dealers may even ask for the co-signer to come and sign some papers. Later, the applicant will find out that the co-signer ended up as the principal borrower. With this, the applicant has to make sure that he or she keeps up with the monthly installments so as not to hurt the other person’s credit.
