How to save money on your car loan
If one of the reasons you’re looking for a car loan with a low interest rate is to avoid paying a lender too much more on top of your car’s value, it might be worth considering making additional payments on your car loan.
By getting ahead in your car loan repayments, you’ll be bringing yourself closer to getting it fully paid off and making an early exit from the loan, which should reduce the total amount of interest you’ll need to pay over the lifetime of your loan, saving you money.
However, this isn’t a valid option for every low-interest car loan. That’s because some lenders charge fees for making additional repayments or exiting a loan early, to compensate for the interest payments they’d be missing out on. This is something to check before you take out the loan.
Fixed-rate car loans tend to carry more restrictions, often locking borrowers into tight repayment plans. Variable rate car loans tend to have more flexible repayment arrangements, though some lenders do still charge these fees. Again, make sure you’re familiar with the car loan’s terms and conditions before signing on.
What is a car loan redraw facility?
If your low-interest car loan allows you to easily make extra repayments, there’s sometimes an added benefit beyond just bringing you closer to exiting your loan early. If your car loan also includes a ‘redraw facility’, you’ll be able to claim back (or redraw) the extra money you’ve paid onto your car loan if required.
As well as adding extra flexibility to your car loan, a redraw facility can help you make those extra repayments with confidence – you’ll be able to get ahead in your loan without locking up your spare cash in your loan and losing access to it altogether.
Please note, though, that redraw facilities often come with conditions attached. For example, you might have to pay a fee every time you redraw money. Also, there might be limits on how much you can withdraw within a certain time period.