The high cost of buying a new vehicle is prompting some shoppers to select a longer-term loan in order to afford the monthly payment. The trend is 60, 72, even 84 months. The plus side is a lower monthly payment that is manageable for the family’s budget. The downside is the longer term dramatically increases the cost, namely interest, to own that car or truck.

However, some buyers say the longer term makes sense because they want a vehicle with the newest styling or state-of-the-art technology. Listed below are several methods to reduce the monthly payment for that next new car or truck.

Longer-term loan advantages

Say a buyer wants a mid-sized sedan with a $30,000 purchase price. Two hypothetical examples are provided here that include state and local taxes and any other dealer costs. For the first example, the total out-the-door cost is $30,000.

The buyer has a trade-in worth $10,000, meaning $20,000 will be financed. Using an interest rate of 3.75 percent and a sales tax of 7.5 percent, the buyer pays $499.90 per month for a 48-month term loan, resulting in an interest charge of $1,745.14.

If the loan is stretch to 60 months, the monthly payment $407.26 with a total interest charge of $2,185.73; 72 months, $345.58 per month, interest total, $2,631.51; and, 84 months, $301.58 per month, and $3,082.48 in total interest.

For the second example, let’s assume a buyer wants a luxury SUV with a total out-the-door price of $55,000. His trade-in is worth $25,000 and he plans to borrow $30,000. Using the interest rate mentioned above, the monthly payment on a 48-month loan is $766.70, resulting in $2,676.53 in interest.

If a 60-month term is preferred, the buyer pays $624.62 per month, $3,352.77 in interest; 72 months, $530.01 per month, $4,035.92 interest; and, 84 months, $462.53 per monthly, $4,727.62 interest.

Again, the longer the term, the more interest that is paid on loan and the more your car will ultimately cost. From a cash flow perspective, though, the monthly cost drops.

Boost that down payment

If it is manageable, another way to lower the monthly payment is to add a cash to the down payment. For most shoppers the “down payment” in essentially the trade-in value of that old car or truck. But if a shopper can add a few thousand dollars to the deal on top of the trade-in, less money is borrowed for the car loan. The end result is a lower monthly payment and interest cost.

Shop for a vehicle loan

Check several banks and credit unions to determine the prevailing interest rate for a new vehicle loan before walking into the dealership. Figure out in advance the amount that likely will be borrowed, the term that feels comfortable, 48 months, 60 months, 72 months, etc., as well as the monthly payment.

Then pit that loan information against what the dealer can offer from the manufacturer or contacts he has with various financial institutions. Sometimes the dealer can beat the loan deal you discovered while shopping. Go for the loan with the lowest interest rate and monthly payment as well as the shortest term that can be comfortably handled.

Consider a less expensive vehicle

Can you afford that new vehicle without turning your monthly bill payments into a crisis situation? If the proposed monthly payment for the vehicle of your dreams will jolt your lifestyle and budget, it is wiser to shop for a car or truck that is less expensive. Depending on an individual’s circumstances, it might be smarter to buy a lower-priced, certified pre-owned vehicle that is offered with an extended warranty.

Buying vs. leasing

The vehicle of your dreams is more reachable if you lease rather than buy. After selecting the brand, model and optional equipment, select the lease term, 24 months, 36 months, or something else. With a lease, you are only paying for the use of the vehicle.

Two things to remember when looking for a lease deal. First, shop several dealers.  You can shop three dealers and receive three different monthly payments that could range from $50 to $100 over the best deal. Second, you can reduce the monthly lease payment by contributing a down payment.

Check your credit score:

Finally, before shopping for a vehicle check your credit score rating. If your score is low, put off buying that new car for a few months and spend time trying to boost that number. Pay bills on time, reduce the amount owed on credit, eliminate accounts with small balances and clear up any issues with collection agencies. Look for advice and check online for tips to improve a credit rating score. Then wait two, three months and check your score again, hopefully it has improved.

Remember, the higher the credit score number, the lower the interest rate for a loan, which will result in a lower monthly payment and interest charges. 

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