Cars are expensive, yet almost everyone pays for them with borrowed money. To minimize the cost of ownership, it’s essential to shop for the lowest-priced loan you can get.
Here’s a good car buying rule: Make a down payment of 20 percent or more and finance your vehicle for no longer than four years. You can easily get into trouble when you put little money down and sign on for an auto loan of five years or more. Before you know it, you’re “upside down,” owing more on a car than it’s worth.
When deciding on a loan term, it’s helpful to see what happens to your payments when you stretch them out over a longer period.
Here’s another way to cut your interest cost over the long run: Opt for more-frequent loan payments. Instead of paying once a month, ask the lender if you can pay weekly, every two weeks or twice a month. Financial institutions calculate the interest on the declining balance. Since your principal goes down each month, the interest you pay also goes down. If you make 26 biweekly payments, instead of 12 monthly payments, more of your money goes to paying off the principal. As a result, your...
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