- Late payment fees. Set up autopay to avoid the fee for late or missed payments.
Consider your loan term
How much your car loan costs also depends on how long you take to pay it back – that means there’s more time for interest to add up
Let’s assume you want to borrow $20,000. Over a five-year term you might be quoted an 8% interest rate, but you’re offered a 7.5% rate if you accept a seven-year loan term. Let’s see how it would work out.
If you choose the 7.5% interest rate your payments are almost $100 per month cheaper. This can be appealing because it’s obviously more budget-friendly. Unfortunately, even with the cheaper interest rate you end up paying more than $1,436 in additional interest charges.
One option is making additional payments and paying off your car loan sooner, but check to see if you’ll be charged an early repayment fee that wipes out any savings you thought you were getting.
Calculate your loan cost
Use our monthly repayment calculator to find out how much you’d end up paying per month and overall with a low-interest car loan.
What factors influence interest rates?
Buying a brand new car might get you a lower interest rate, but a new car might not be what you need – or can afford. Here are some factors that can influence the interest rate you pay, even for a car to get you from point A to point B.
- Secured or unsecured loan. These loans are cheaper than unsecured loans becuase the car uses your car as security for the loan.
- Fixed or variable interest rate. You’ll usually find that the variable rate offered is usually cheaper than the fixed rate because it might fluctuate throughout the loan term.
- Age of the car. This determines the type of low interest car loan you’re eligible for. When it comes to used cars, some lenders won’t approve loans for cars with too many miles or are 10 to 20 years or older. Cars older than 20 years may need to be bought with a personal loan instead.
- The loan term length. Calculate your monthly payments over a three-year, five-year and seven-year term to make sure you can keep up with payments. However, with longer terms, you’ll pay more in interest.
- Employment status. If you have a stable employment history and you can show documentation to verify your income, you’ll typically qualify for a low interest rate car loan. However, if you’re self-employed and you can’t verify a source of income, you could pay a slightly higher rate.
- Your credit history. If you have poor credit history, it’s likely you won’t qualify for those really low advertised rates. Your search for car loans may be limited to higher interest rates until you can improve your score.
- If brokerage fees are charged. If you’re getting a car loan through a broker or car dealership, you might be expected to pay brokerage fees. Some brokers charge a percentage or a flat free ranging from $200 to $500.
Check what fees are being charged for your loan and ask them to be reduced. If you can’t get them reduced, shop around elsewhere for a more competitive deal and always compare your car loan options before you apply.
Frequently asked questions
Not necessarily. If you qualify for the loan on your own, you won’t need one. However, having a cosigner could result in a lower interest rate.