couple speaking with a car sales woman

Can I negotiate the terms of my car loan?

So you’ve decided it’s time to invest in a new run around, but you need a little bit of help in the form of a car loan. There are a few different ways you can go about acquiring a loan, but did you know that you don’t have to accept the terms of a loan right away? The interest rate offered by a dealer might actually be a lot higher than the “buy rate” since they include a handling or admin fee.

In fact, you are well within your rights to start a little bit of negotiating, before you settle for anything. This can save you anywhere between hundreds and thousands of dollars in the lifetime of your loan, so it is definitely worth a shot.

Negotiate the price

The first place you should begin is negotiating the price of the car itself. When it comes to salesmen in a showroom, they will more than likely direct your attention to monthly payments, and will draw attention to a low monthly rate with a longer term of repayment.

Instead of focussing too heavily on this, try to draw focus to the cost of the actual car instead of the loan. If you manage to secure your car for a lower price, then your monthly repayments will also end up being lower, but you will still pay less overall. You are more likely to be successful in your attempts if you enter into negotiations with enough research about your chosen vehicle under your belt. Make sure you know how much the recommended sale price is by the manufacturer, and try to be confident.

Organise your car finance up front

If you manage to secure a pre-approved car loan, then you will have to worry a little bit less about negotiating finances with your car dealer. You’ll arrive at the car dealership with a set amount of money already, and if your dealer is aware of this, they may be more willing to negotiate.  Without a pre-approved loan, you could find yourself into a bidding war with a dealer who is offering their finance. In this situation, they may be a little less lenient, and instead try to talk you into a higher cost overall. You could also be singed with some service charges.

Keep your loan term short

One way that borrowers can lower their monthly repayments is to extend the length of their loan. While this may seem like a good idea at the time, it’s actually counterproductive. Cars are depreciating assets in the sense that they lose value every year, therefore a longer loan term could end up snubbing you in the long run. The longer your loan term, the more interest you’ll end up forking out. Ideally, you should aim to speed up your loan term and accept no longer than four years, however it is important that you accept one that you are certain you can afford.

Don’t accept a high interest loan

Similarly, the higher interest your loan carries, the more money you will end up parting with over your repayment schedule. Although your interest rate is largely determined by your credit rating, even if you don’t have the best credit history, it still doesn’t justify taking a loan with an insanely high interest rate.

If your credit rating isn’t so great, you should still try not to accept anything higher than 15% APR. No matter what your credit situation, you can still negotiate a decent rate on your car loan. Try shopping around at different lenders, or looking online at their offering, to find the best rate for you.

Obviously, it is always easier to enter into negotiating a car loan with a good credit history. Like with any loan, the better your credit rating is, the better all of the variables involved in repaying the loan will be. If you do have to accept a higher interest rate initially, after 12 months boosting your credit score by successfully making repayments, it should be enough to allow you to refinance your car loan.

Choose a High Down Payment

Having to spend a huge sum of money might seem counterintuitive if you’re trying to negotiate lower costs in every other aspect, however a larger down payment is actually your friend. The more money you spend upfront, the less you have to put down later, and the more you save on those interest fees.

Your large down payment will be attractive to the lender, and may aid your mission to secure a short-term car loan.

Say no to any extras

When it comes to car dealers, they are at ground level salesmen, and they will push this to its limit. Whether its rustproofing, insurance packages or new floor mats, the dealer will have an option to buy it all from him. Although many of these add ons are necessary, such as car alarms and other safety features, you can invest in them aftermarket for a much lower cost.

Let your dealer know you’re looking elsewhere

It can work in your favour to let your dealer know that you are shopping around for the best deal. If you make it clear they are your first choice, it's more likely that they will try and upsell as much as possible. Introduce some competition to the mix, and use this to push your negotiations in your favour.