Blog Post

Driving home in a new car is a great feeling. Knowing you got the best deal is even better. Part of determining if you have a good deal is discovering what affects the cost of your auto loan. There are many factors that influence the total amount of an auto loan and you can impact some of those factors to save more.

Repayment Terms

The number of months you agree to pay on the loan changes the cost of the loan in a big way. Car buyers may choose a longer term to keep the monthly payment low, and afford a more expensive car. This method could be worth the extra cost to buy the car you truly want. Just remember, the longer the term, the more expensive the loan. For example, if you are borrowing $20,000 for a car at an interest rate of 5.00%^APR for 24 months, the total interest is going to be about $1,058. If you extend the term to 60 months with all other variables being the same, the total interest increases to about $2,645. That is a $1,587 difference, and the only change was the number of months. Usually when you increase the number of months to pay off the loan, you will also see an increase in the interest rate meaning there could be an even greater total cost. See our simple loan calculator to try it for yourself.

When completing a loan application, ask about the details of your loan, what they mean, and their impact on how much the auto loan costs. Fully understanding your terms will help you get the most for your money.

Down Payment

Down payments are another major factor that determines the cost of your auto loan. The greater the down payment, the less interest you pay. Down payments can often range from putting no money down to 20% or more of the purchase price. The savings you’ll see with a large down payment are incredible, but do not sacrifice the money in your account in pursuit of a big down payment. Keeping enough in your savings for emergencies will help you avoid financial difficulty if an unplanned expense occurs.

Guaranteed Asset Protection

If you do not have a large downpayment, GAP insurance may come in handy. When you drive off the lot with your new car, the car value tends to decrease and so will the amount normal car insurance will cover in the event your car is totaled. GAP is extra insurance that comes to your aid to cover some or all of the remaining cost of your loan that insurance won’t to allow you to focus on getting your car replaced. This additional protection may increase your monthly payment, but the added benefit is well worth the cost. Plus, MembersAlliance has member deals for GAP and other extended protection services.

Interest Rate

Interest rates generally change based on your credit score, how long your term is, where you get your loan, and any discounts you may qualify for. Interest rates also fluctuate due to how much your down payment is, or how many months it will take to pay off the loan.

Transferring your auto loan from one financial institution to another for a lower interest rate is called refinancing, and is a great way to increase your savings. If you find a financial institution that offers better rates, refinancing allows you to take advantage of those rates.

Discounts significantly impact the interest rate and are worth exploring to get the most savings. Some discounts are for a limited time, others are offered all year round. Taking advantage of all the discounts available is a smart way to boost your savings.

MembersAlliance has a wide variety of auto loan discounts:

• Discounts for members with an active checking account and direct deposit.
• A Learn & Earn discount that takes 0.25% off your auto loan rate and provides beneficial information for auto loan success.
• A MembersAlliance Visa Platinum Rewards Credit Card, that can transfer points you earn from your purchases towards lowering your auto loan rate.
• Plus, specials throughout the year as an extra savings boost.

Credit Score

Your credit score will affect the cost of your loan and your ability to borrow. To make the most of your credit score, start by discovering your current score and how to improve it. The higher your credit score, the better chance you will qualify for lower interest rates and increase your savings.

Viewing your credit score is easy and free through online sites such as Experian or Credit Karma. Even better, with MembersAlliance’s new mobile and online banking, which will be rolling out mid-late July, we have a new credit checking tool that displays your credit score and suggests ways to improve your score.

To prepare your credit score and get the best rates possible, try to pay down any existing debt to boost your credit score. If you don’t have any current debts, and would like to increase your score, try our CreditBuild Loan. This special loan builds your savings for a downpayment while creating positive credit history.

Getting terms that fit your budget, saving up for a good downpayment, taking advantage of great rates and discounts, and boosting your credit score are all significant ways to impact your savings when buying a car. Having a lender on your side and dedicated to guide you to the best ways to save can be an auto loan game changer. At MembersAlliance, we can help you do just that. Our Certified Financial Counselors on staff are available to meet with you to create a plan to prepare your credit score and budget for your next auto purchase. If you are ready to buy your new car, we have an easy online application to get started today, or to connect with an experienced loan officer, call 815-226-2260 or visit a location near you.