With all types of finance – including car loans – it simply makes sense to regularly review what you have and what your options are. Building up a good repayment history with your lender may mean there is an opportunity for an interest rate reduction. Or, perhaps you have a little more disposable income available, which could help you pay your loan off faster…
Whatever your situation, taking the time to review your car loan could help you to reduce the cost and duration of your finance.
Review your budget
The first step in making sure that your car loan is running efficiently is to review your budget. It’s easy to under or over estimate the repayment level that you can afford when you’re trying to set up a loan to buy a new car. And it’s never too late to take a closer look if you find that your budget isn’t working for you.
Start by totaling up all the costs that your household incurs on a monthly basis, including the cost of running your car but excluding your loan payment. Take these away from your income, and you’ve got a good measure for how much you can afford to make in repayments.
Adjust your payments to match your position
Finances change all the time, so you may find that your repayment ability has improved or reduced since you originally signed up for your car loan. Either way, it’s important to have a conversation with your current provider, who should be able to help you to understand the impact that restructuring your payments could have on your loan.
If you can increase your repayment level that’s great news. Increasing payments will help you to reduce the duration of your loan and therefore bring down the cost of interest that’s included in your finance agreement.
If you need to reduce your repayment levels, it’s important to take action as soon as possible. Being able to make your payments on time, as required by your agreement, is essential to protect your credit record. Keeping your credit record clean is vital if you want to command the best interest rates and ensure that you can borrow money in the future when you need it.
Review your credit record
Understanding and protecting your credit record is an important factor in making your car loan work for you. If your credit score was low when you originally applied for your car loan, you may be paying a higher interest rate. Your finance provider applies this as security against the risk that you won’t make repayments.
The good news is that if you’ve been making your repayments on time and as required since setting your car loan up, the chances are that your credit score will have improved. That means that you’ve got the opportunity to revisit your interest rate with your car loan provider.
Take a look at the interest rates available
A small change in interest rate can make a big difference to the cost of your loan. If interest rates have gone down then you may find that you can renegotiate your loan or switch to another provider, without negatively affecting your financial position.
Always ask your existing provider for the balance of your loan if you were to pay it off in full before calculating the cost of moving your car loan. Many car loan providers include penalties for early repayment so it’s important to be aware of the fees attached to your loan before you decide to make a move.
When you sign up for a car loan there’s no need to think that the structure and costs are fixed until the loan is paid in full. Set a regular date in your diary to review your position and check that you’re doing everything you can to make your car loan work as effectively as possible for you.
By reviewing your credit position and available finances regularly, you will be able to identify if there are any opportunities to improve your loan structure and fast-track repayment. Many providers recognise that financial circumstances change, and are happy to support you and help you to minimise the long term cost of your loan.