Paying interest on a car loan is not a good idea, but it is a necessary evil. This is because cars depreciate from the moment you buy them. That’s why you need to ensure that you pay as little interest as possible. Here’s how you can get good terms for your car loan.

Understand Your Credit Situation

You’re allowed an annual free credit report check. Use it to check your credit score and report. Correct any errors in it. If your credit score is poor, spend some time improving it. Ideally, try and get it over 700 to get the best deals.

Get Financing Quotes

If you have excellent credit, you’ll get good quotes everywhere. If not, then check credit unions, local banks, and online lenders. Get pre-approval so you can negotiate for better offers with the dealer.

Keep the Term as Short as Possible

The ideal situation is a short loan term with low-interest rates and higher monthly payments. This will keep you from paying too much interest on the loan and help you get debt-free sooner.

Put 20% as A Down Payment

Always save up and pay at least 20% of the car’s price upfront as a down payment. That way, you’ll borrow less, owe less, get better loan terms, and be able to keep the loan term short. It’ll prevent a situation in which you owe more money than what the car is worth.

Pay Cash for Taxes, Fees, and Extras

Do not let the dealer roll in the taxes, fees, and any extras you want to purchase into the loan. It does not make sense to pay interest for those things. Ideally, save up and pay for all these in cash.

Gap Insurance

Gap insurance is what covers the balance of what you owe for the car in the event of an accident, and the vehicle is declared a total loss. It’s what people buy out of fear. But if you structure the loan properly, you won’t need it because you won’t owe more than what it’s worth. A simple approach is to put down the maximum amount as a down payment and keep the loan term to three years.