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How to Save Real Money on Your Car Loan

by Remie Van Der Hulst

Getting a new car loan shouldn't be done too hastily, as you want to ensure you do everything possible to save money over the life of the loan. Unfortunately too many consumers get the first loan they're offered or don't do any research and prep work before applying for a loan, and this can cost them money or keep them from potential savings. Note a few ways you can save real money on your car loan.

1. Negotiate the purchase price, not just the monthly payment

You need to be able to afford the monthly payment for your car loan, but you don't want to spend so much time negotiating a lower payment that you forget to consider the overall purchase price. The lower the purchase price, the less you need to finance and the less you'll pay in interest costs over the life of the loan. Start your negotiations with the purchase price first and then consider the monthly payments so you can save as much as possible over the months you'll be paying on your loan.

2. Clean up your credit

Before you even apply for a loan of any sort, do your homework on your own credit. Take the time to pay off small loans and call credit bureaus to have mistakes fixed, or old information removed altogether. In some cases you can even ask that positive information be added to your credit report, such as a good history of paying your rent or utility bills. Note that even a few small blemishes can mean paying more interest on a car loan, costing you hundreds of dollars over the years, whereas improving your credit history even just a little can mean a better interest rate on your car loan.

3. Overpay

Remember that for most car loans, your interest is consistently being recalculated according to the remaining loan amount due. Your monthly car payment usually goes to cover the outstanding interest and then the loan amount itself. Overpaying every month, even if it's just a little bit, means paying less interest overall as you'll be paying more toward the actual loan amount; in turn, you'll be charged less interest over the life of the loan.

This can also apply to getting a higher monthly payment than you imagined. Rather than spreading the car loan out over several years and paying less each month, choose a shorter loan with higher monthly payments. You'll find that you actually pay less over the life of the loan this way than if you had low monthly payments but for a longer loan period.