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How to save money on auto loans

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Tapping into your home equity may save you more than your dealer's offer of zero percent financing on a new car loan.

Saving dollars on your next car loan comes down to a bit of shopping and avoiding the pitfalls. Here are some helpful tips:

Use your home equity

Of the two choices, a HELOC often has the lowest initial interest rate, but, because its rate is variable, it can leave you vulnerable to the possibility of increased payments should rates rise. It’s therefore often considered more suitable for car loans of 36 months or less. For loans over 36 months, a fixed-rate home equity loan that has a guaranteed rate for its entire term may be a better choice.

It’s important, however, before choosing to secure your vehicle loan against your home, to understand the risks involved with this type of financing. Because you are using your home as collateral, you must have the discipline to make all the necessary payments on time or you could end up in a position of having to sell your home.

Arrange independent financing

Many dealers will try to get you to tell them what monthly payment you can afford. This leaves room for them to bump the interest rate up to that monthly payment level. They can then sell the loan to a lending institution and receive a commission based on the difference between what you’re paying in interest and what the bank normally charges. This can be costly for you. For example, on a $20,000, 48-month car loan, the difference between a 7 percent interest rate and 9 percent is slightly more than $900 over the term of the loan.

Be careful of zero interest loans


Check your credit score


Consider leasing

Watch for lease specials to get the best deal. But make sure you read the terms of the lease, including whether the advertised monthly payment includes sales tax and fees. Also, you should consider whether you’re paying a larger than average down payment to secure the lower lease rate.

To find the right auto loan for you, visit lendingtree.com, the preferred auto loan provider for AutoTrader.com.

Provided by LendingTree. Copyright 1998-2008, LendingTree LLC. All rights reserved.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
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How to save money on auto loans - Autotrader