For most people, a mortgage is the biggest financial commitment they will take up in their lifetime. And for most people too, a car loan is the second biggest liability they have to ever repay. To put it into perspective, transport is almost as important as having a roof over your head. Sometimes, a 10 minute drive can take an hour on public transport. And let’s not even get started with the public safety issues.
There are already a lot of expenses involved in trying to keep your car happy. There is the servicing, oil change, tyre change, timing belts, parking fees, grooming, and more. It is no wonder motorists often label them money-eaters. And this is all the more reason you should do whatever you can to save on financing your vehicle.
The obvious method to save some money is to downgrade your car. But for many people, that is not an option. So here are 3 easy strategies to give your pockets some relief.
Refinance your car loan
Just like mortgages mentioned earlier, refinancing is a common activity for auto loans. Basically, if you are paying 5% now and there is an offer on the market for 2%, very little convincing is needed to get you to refinance.
A common scenario many people face is that when they first got their current auto loan, they had a credit record that is not too presentable. This subjected them to high interest rates on the existing loan. But as time passes, their credit improves. Helping them qualify for much better terms on a new loan. It would be a good time to refinance. But if you do not even make the effort to find out, you will miss out on an easy opportunity to save some money that would otherwise go o waste.
Pay above the minimum
This simply concerns making additional payments than you are required to so that you are reducing the principle sum slowly over time. As your principle shrinks, so does the interest chargeable. Depending on the terms of your contract, you could end up with lesser installments or a reduction in the monthly amount.
As you continue to make bigger payments while the monthly amount is reducing, you are in effect, paying off more and more of the outstanding principle. All these are financial gains that you would otherwise have to pay. It is like an additional cash bonus for you.
Home equity loan
If you can’t find a car loan in the market that is half the price of your current one, relax. Because you could be sitting on it right now. Home equity loans are one of the cheapest forms of lendings available to consumers. They are so cheap because a house is a great asset that banks put considerable value on. With a house being used as a collateral, the lender will be very willing to grant loans with low rates.
The idea is to take up a home equity term loan and use it to fully redeem your vehicle loan. So essentially, you are replacing the debt on the car with the one on the house. And you can look forward with great savings on interest rates.
The only issue is that home equity borrowing often comes with long tenor and the borrower is often tempted to borrow more than he need since it is cheap money. So sometimes, people can get deeper into debt using this method. Just be mindful of that before making such a decision. You are just throwing money down the drain if you take up more borrowed fund without having any idea how you intend to make good use of them.