Car Loan Negotiation Tips to Help You Save on Monthly Payments

Published: February 24, 2021 | Posted by: Ricky Publico | Car Insurance


How to Negotiate a Car Loan | Moneymax

Planning to buy a car this year? Unless you have lots of cash, you will have to rely on a car loan to finance your big purchase. That means you should know how to negotiate a car loan and make it a lot easier for you to pay what you owe. After all, it will take years to do so.

You’ll need all the help you can get. But fortunately, you can easily juggle car loan payments as long as you properly manage your finances. So how can you make owning a car less of a financial burden? Here are some few tips on negotiating lower car loan payments.

Tips on How to Negotiate a Car Loan

Rely on a Good Credit Score

If you’re planning to negotiate your car loan payments, you better have a good bargaining chip in the form of a good credit score. Before you apply for a car loan, make sure to build a stellar credit history to increase your chances of getting a lower interest rate or higher loan amount.

To find out what your credit score is, you can request a credit report from the Credit Information Corporation[1] by scheduling an appointment online via their website or the CIBI App for Android users. If you have a low or non-existent credit score, start building your credit history today.

Get a Loan From Your Bank

apply a loan from your bank

You probably have a long-standing account with any of the major banks in the Philippines. If that’s the case, you should apply for a loan from your most trusted bank. An established relationship can help you get a quicker approval on a loan, lower interest rates, or more flexible payment terms.

A long-standing relationship with a bank won’t get you eye-popping discounts, but you can get anywhere between 2-4% per annum depending on your status as a client. While you’re at it, look out for any promos that your bank may be offering on auto loans, preferably 0% interest ones.

Pay a Higher Down Payment

While banks are a little more lenient with lending these days, getting approved for a car loan is not a walk in the park. The recommended monthly income is pegged at PHP 51,210[2] so if you want to increase your chances, consider paying a higher down payment.

Most banks ask for 20% of the car’s amount as down payment but note that it’s only a minimum. You can go as far as 50% of the car’s total amount in order to pay off the loan in a much shorter span of time. This also gives you more leverage when it comes to figuring out how to negotiate a car loan.

Read more on Car Insurance Costs:

Choose a Shorter Loan Term

how to negotiate a car loan - choose a shorter loan term

In order to convince your bank to give you a lower interest rate, try choosing a shorter loan term. Usually, the annual percentage rate (APR) on shorter terms tend to be lower compared to longer terms. A lower APR means you’ll end up paying less so focus on getting a lower APR.

The shorter the loan term, the quicker you can pay off your car loan. So aside from the logical reasoning behind it, choosing a shorter loan term helps you score lower interest rates. If you can afford to pay a slightly more expensive monthly amortization, your car loan will be done in no time.

Look for More Loan Options

When you’re looking on how to negotiate a car loan, don’t just settle for one bank. As a negotiation tactic, you can look for more loan options from other providers and use their rates to negotiate a better rate with your current bank. See, bargaining isn’t exclusive to groceries and marketplaces.

Looking at other loan options can also help you find a better car loan deal. After all, you don’t need to stick with the bank you’re currently with. As long as a loan deal is beneficial to you, go for that one and negotiate from there. It’s always best to compare loans for every financial need.

Pay On Time Every Time

Once you scored a great deal, make sure you pay on time all the time. If the budget permits, pay early before the due date to avoid spending your loan payment on unnecessary expenses. This also helps cultivate the habit of prioritizing your debt and encourages improving your budgeting skills.

Paying on time also helps you build a better credit history for your next big purchase. By the time you’re done paying off your car loan, you have established a great credit history that banks won’t think twice to approve your next big purchase. You probably don’t need to negotiate.

Avail a Loan Modification

apply for loan modification

Loan modification is an option for people who bought their car at a higher and longer loan repayment term. In essence, it allows you to change the terms at which you pay your loan. Some banks offer this option, allowing you to pay your loan at more flexible terms, or lower interest rates. This is one of the smart ways on how to negotiate a car loan.

This is not to be confused with refinancing a car loan, which allows you to change the terms of your loan by re-borrowing the amount to overwrite the previous loan. While you can also consider going that route, you may not want to add more debt to what you already have now.

Consider In-House Financing

If you have a bad credit history and you don’t want to borrow directly from the bank, you should consider in-house financing from car dealerships. Your car dealer acts as the middleman between you and the bank and they do get a little something for their trouble, which you end up paying for.

While this route will end up costing you more because of the additional costs, this should help you finance your vehicle when you don’t meet a bank’s requirements. But if you’re looking for more tips on how to negotiate a car loan, you can add your car dealer’s rates to your bargaining chips.

Final Thoughts

Getting a car is a life-changing purchase you need to prepare for. Before you consider buying a car, build up your savings, establish a good credit history, and learn how to negotiate a car loan. Be a responsible borrower so you can reap all the financial benefits of applying for loans.

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