Auto loans are paid down over an extended period of time. Their repayment terms last between one and five years, depending on the borrowing amount. Auto loans are quite expensive, especially if your credit history has not been stellar. Dealership financing is slightly different from auto loans from direct lenders.

It provides you with a couple of alternatives, such as hire purchase and personal contract purchase. Each option has its own upsides and downsides. You will have to carefully analyse your repaying capacity before picking any of them.

Auto loans are expensive if you take them out despite a poor credit score. You would intend to cut back on the cost and pay it off faster. This blog discusses some tips on how you can cut the costs of your car loan and how you can pay it down as fast as possible.

Ways to cut the costs of car loans

Here are the ways to cut the costs of car loans:

1. Keep your credit score good

A decent credit report is the minimum requirement to have a car loan approved. Chances of qualifying for a lower interest rate are high with a stellar credit report. It is worth noting that lenders use their own methods to calculate the risk involved in lending you money. They do not rely on a credit score that credit reference agencies calculate. They would rather calculate it using their own method. It is likely that your credit score is not as good as it is on your credit report. Of course, you will end up with high interest rates.

A credit score plays a paramount role in determining interest rates. The higher your credit score, the lower your interest rates will be, and vice versa. So, if you want to keep the cost of your car loans, you should keep your credit rating in good condition. Here is how you can do it:

1. Your credit bills should not be outstanding. Pay them off every month in full.
2. Make sure that you discharge your credit card bills before the balance is reported to credit reference agencies.
3. At the time of taking out an auto loan, you should not owe any other debt obligation.

Car finance in Ireland with bad credit is also available, but it charges higher interest rates.

• Avoid choosing a longer repayment term

After taking out a car loan with a bad credit rating, you would desire to refinance it. Car loan refinancing will help you obtain revised interest rates. These interest rates will be lower than those you got the first time because your credit file will be checked again. This time, your credit score would have improved if you had made auto loan payments on time. This will increase your chances of refinancing at lower interest rates.

But some people choose a longer repayment period because this reduces the size of the instalment. Unfortunately, this increases the total cost of the loan. A longer repayment period will keep accruing interest on the unpaid balance. You will end up paying more money in total interest.

• Choose a secondhand car or put down a larger deposit

Your car loan will cost you less money when the loan-to-value is less. Therefore, you should try to purchase a secondhand car. These cars cost you less money. If you do not want to purchase a secondhand car, you should try to purchase a new one at the end of the year. Because the model becomes a year old in January, companies try to sell their existing models at discounted prices.

You can also decide to put down a larger deposit. Instead of 10%, you should pay down up to 20%. This will reduce the loan-to-value. As a result, you will be able to reduce your car loan cost.

Ways to pay off your car loan faster

Here are the ways to pay off your car loan faster:

1. Refinance your car loan

Refinancing your car loan would help you pay off your car loan faster, provided you have picked a shorter term. This will undoubtedly increase the size of monthly instalments, but it will not affect much the portion of the loan you had already paid down before refinancing. This time, you will also be able to obtain low interest rates.

You can refinance your car loans from an existing lender or a different lender. Compare interest rates because one could be charging a higher rate than the other.

• Change the way you make payments

By changing the way, you make payments, you can quickly discharge your obligation. For instance, you can opt for weekly or bi-weekly instalments. If you have been promoted and you have received a job appraisal, you can discuss your lender about your financial condition.

Ask them if they can allow you to pay a higher payment because you can afford to pay more money. This will increase the total size of the instalment, but you will be able to get rid of a car faster than ever.

• Make an extra lump sum payment

If you receive gifts and windfalls, you can utilise them to make your auto loan payments. Bear in mind that you will be charged early payment fees for early settling your dues, but despite early repayment fees, you will be able to save some money. Further, it helps you get rid of the debt sooner rather than later.

• Fine-tune your budget

In order to settle your auto loan as early as possible, you will have to fine-tune your budget. There is no doubt that you will have to cut back on your expenses. The more you retain, the more you can pay towards car loan payments. Look over your budget and check where you can save money.

One of the benefits of budgeting is that you will not have to rely on online loans in Ireland. This is because you can easily set aside for a rainy day. Use various types of budgeting methods and then evaluate which works best for you. Auto-debit mode is the best option, so you do not end up missing a repayment.

The bottom line

Car loans could be expensive. It depends on multiple factors such as your credit scores and income sources. In order to reduce the cost of a car loan, you should choose a shorter repayment period, improve your credit score, and put down a larger deposit.

In order to pay off your car loan faster, you should make an extra lump sum payment, fine-tune your budget, change the way you make payments, and refinance to a shorter repayment period.