Advice on getting behind the wheel and saving money while you do it.
If you’re on the hunt for a new set of wheels, a car loan is a great place to start. Not everybody can afford to pay upfront for a new vehicle and car loans are an increasingly popular way of getting behind the wheel.
A car loan works just like any other loan: a third-party financial institution gives you money to buy a new (or pre-owned) car with an agreement to pay the full amount (plus interest) back through monthly instalments.
Related: Is a balloon payment a good idea to save money on my car payments?
A car loan usually spans over a period of a few years, which is why it’s so important that you find the best one. Taking out a loan doesn’t mean you can’t try and save money, and we’re going to dive right into how you can do that:
Tips for Saving Money on Your Car Loan
Buy a cheaper car
This is a relatively serious piece of advice and one that we’d like to start off with: there is no reason to live beyond your means. Only you know the state of your finances and how comfortable you are with being in debt (not very comfortable, generally). Only you know if you have earned enough to be able to reasonably and responsibly buy a luxury vehicle.
Look at what you need practically and stick within those parameters. If you really want to save money (to one day comfortably buy that dream car) you need to make sacrifices now. Instead of scrambling for huge amounts of money to pay off your car loan every month, stick with a number you know you can consistently hit for the foreseeable future.
Discover: What to look for when buying a second hand car: 6 safety features
Shop around (skip the middleman)
We bring this tip up a lot because it’s a simple exercise that too many people seem to skip! Every reputable lender should be online and available for queries. You want to find a lender that is trustworthy, low interest and flexible.
Your dealer is the middleman, and will likely propose an auto loan through the dealership. You should definitely ask for a quote and maybe they turn out to be the guys for the job, or maybe you find something more affordable. When there is a middle man, you’ll automatically be paying more for them facilitating the loan.
Don’t be nervous to negotiate – it could be worth it. From the moment your car leaves the dealership, it depreciates in value. You don’t want to be paying interest on your car for years – you can end up losing money and end up owing more on the loan than the vehicle is worth. But it can’t be avoided for most people, so you need to be smart about it.
Refinancing
The purpose of refinancing is to lower your interest by securing a new loan. This loan will have monthly payments which are lower than your current loan. You can negotiate certain benefits with your lender like a lower interest rate, which would decrease your monthly instalment amount.
Or you could extend the repayment period which would do the same. Another option is to reduce your payment period to the same amount payable on your current loan.
Skip small loans
Banks make money off of interest: the longer you’re paying off a loan, the more money they’re making. To balance the scales, small loans have higher interest rates. If you’re shy of the money you need by five to ten thousand rand, consider waiting.
We would also advise that instead of a small loan, you take that money from your savings and commit (seriously commit) to paying yourself back each month.
Clean up your credit score
A credit score to a bank is what a reference letter is to a potential employer. To get the best possible interest rates, you need the best possible credit score. Credit plays a huge role in how high or low your interest is.
Banks favour those who have a credit history that shows timely repayment. If you need some time to clean up your credit and you can wait a while to buy your car, do it. It can make the world of difference to your savings if you wait until a lower interest is available.
Don’t skip out on car insurance
Traditional financial lenders won’t consider your application without comprehensive car insurance. Luckily, we can point you in the right direction. Oneplan Car and Household Insurance is completely comprehensive, meaning you’re covered for the very most.
Read next: Undeniable proof that you need car insurance, today
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