Americans Are Overpaying for Their Car Loans: Here’s How to Avoid It

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If you’re in the market for a new car, you’ll want to read this. A recent study by Consumer Reports shows that many Americans are overpaying for their car loans by hundreds – sometimes even thousands of dollars. This can be easily avoided, though, if you know what to look for. In this article, we will discuss some tips on how to get the best interest rate on your car loan and save yourself a lot of money in the process!

Today, Americans with new-car loans make an average monthly payment approaching $600—up roughly 25 percent from a decade ago. Most borrowers pay their loans with no problem. But in recent years, tens of thousands of consumers have found themselves in financial sinkholes after receiving high-interest, longer-term auto loans that, like the Maryland resident, put them at serious risk of default, CR’s investigation found.

This is happening as total auto loan debt held by Americans has increased dramatically over the past 10 years, surpassing $1.4 trillion—more than the gross domestic product of Australia. Because of recently skyrocketing prices for new and used cars, that debt is likely to grow even more. The average price of a new car now tops $36,000, while the average used car costs about $20,000. At the same time, the typical length of a new-car loan has increased to nearly 70 months—or almost six years—from about 48 months in 2009. And the percentage of loans lasting 84 months or longer has more than tripled since 2010.

All this means that many consumers are now shouldering heavy monthly payments at a time when wages have largely stagnated. That’s a problem because, as CR’s study found, one in seven borrowers are already “underwater” on their auto loans—meaning they owe more than the car is worth. And about one in 12 have missed at least one payment in the past year.

So what can you do to avoid overpaying for your car loan? Here are a few tips:

Shop around for the best interest rate.

When you’re shopping for a new car, it’s important to get the best deal on both the vehicle itself and the financing. While most people focus on negotiating the price of the car, the interest rate on your loan is also important. The lower the interest rate, the less you’ll pay in interest over the life of the loan. That’s why it’s important to shop around and compare rates from multiple lenders before making a decision. Don’t just take the first offer you receive – talk to multiple lenders and compare rates. By taking the time to shop around, you could save yourself money in the long run.

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Don’t be afraid to negotiate.

Many people feel intimidated by the prospect of negotiating with a car dealer. After all, they are the experts when it comes to cars, and you are just an ordinary consumer. However, it is important to remember that the car dealer is not your friend. They are in business to make money, and they will try to get as much money from you as possible. That’s why it’s important to be prepared before you enter the dealership. Do your research and know what you’re willing to pay for the car. Then, be prepared to negotiate. Don’t be afraid to ask for a lower interest rate or longer loan term. The worst that can happen is that the dealer says no. And even if they do say no, you will have gained valuable experience in negotiating for what you want.

Don’t extend your loan beyond 60 months.

Most people don’t think about the consequences of taking out a long car loan. They focus on the monthly payment and how it fits into their budget. However, what they don’t realize is that the longer the loan, the more interest they will pay. In fact, extending a car loan beyond 60 months can end up costing hundreds or even thousands of dollars in extra interest. Not to mention, if you have to sell the car before the loan is paid off, you may end up owing more than the car is worth. For all these reasons, it’s best to keep your car loan as short as possible. By doing so, you’ll save money in the long run and be able to pay off your debt quicker.

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Make a large down payment.

When you’re shopping for a car, it’s important to keep your budget in mind. One of the biggest factors that will affect your monthly payments is the size of your down payment. If you can afford to make a large down payment, you’ll benefit in two ways. First, your monthly payments will be lower. This is because a larger down payment reduces the amount you need to finance, and therefore the amount of interest you’ll pay over the life of the loan. Second, you’ll be able to pay off your car loan more quickly. This is because a larger down payment means you’ll have less money to pay back, so you can pay off the loan in a shorter period of time. If you’re looking to save money and pay off your car loan more quickly, making a large down payment is a great option.

Build up your credit score.

A good credit score is important for a variety of reasons. One of the most important is that it can save you money on your car loan. The higher your credit score, the lower your interest rate will be. This can make a big difference over the life of the loan, so it’s worth taking the time to build up your credit score. There are a number of ways to do this, but one of the simplest is to check your credit score for free at AnnualCreditReport.com. This will give you an idea of where you stand and what you need to do to improve your score. By taking steps to improve your credit score, you can save yourself money on your car loan – and a whole host of other expenses.

Don’t take out a loan when you didn’t have to.

Although it may be tempting to take out a loan when buying a new car, there are several reasons why paying cash is the better option. For one thing, loans can be difficult to get approved for, especially if you have bad credit. Even if you are approved for a loan, you will likely end up paying more for the car in the long run due to interest charges. Additionally, having a loan can put a strain on your finances and make it difficult to make ends meet each month. On the other hand, if you pay cash for a car, you will own it outright and will not have to worry about making monthly loan payments. Plus, you can use any money that you would have spent on interest charges to pay down the principal of the loan, which will help you save money in the long run. Although taking out a loan might seem like the easy way to buy a new car, it is usually better to pay cash so that you can avoid paying interest charges and save money in the long run.

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Final Thoughts

When it comes to taking out a car loan, preparation is key. By shopping around for the best interest rate, negotiating a monthly payment you can afford, choosing the right term length and making a large downpayment, you can save yourself a lot of money in the long run. For more tips and how-tos, plus the latest news and information from MyChesCo, be sure to sign up for our free email newsletter.

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