Luxury vehicles are in a class of their own. Depending on your preferences and expectations, you could spend twice as much as you would on a normal vehicle. You can often find an excellent deal on a vehicle by watching the market for a few weeks or buying a car that’s just a couple of years old. You’ll get the look and feel of a luxury car, at a much better price.
But if you really want to save on your car purchase, focus on the loan. Everything from the type of lender you use to the interest rates you negotiate can result in paying significantly.
Here are some things you can do to save on your loan.
- Negotiate Before You Find Your Car
Lenders tend to raise rates when they see that you’re purchasing a luxury vehicle. They’re hoping to earn higher interest on such a large loan. But if you negotiate rates before you present them with a vehicle, you can often lock in a great rate before they know the final loan amount.
Credit unions and online lenders often offer lower financing rates than banks, so start there. “Generally, we’ve seen that online banks have been the best,” Anthony Giorgianni, financial editor for Consumer Reports, told Bankrate. “The little banks might be very competitive. A lot of them didn’t get caught up in the credit crunch.”
- Work With Your Credit History
Get your hands on a free copy of your credit score and know the limitations or benefits it will yield. A low credit score (below 680) will make it harder to find a loan, particularly for a luxury vehicle. High credit (anything above 700) will often qualify you for lower rates and better loan terms.
- Put More Cash Down
Loans for an expensive, luxury vehicle tend to be very risky for lenders. However, a large down payment decreases your risk significantly. You’ll always be more appealing to lenders when you have more cash up front.
A higher dollar amount will also qualify you for a lower interest rate. Use this as negotiating power with your lender. “A substantial down payment signals to lenders that you’re committed to the car and therefore represent a lower-risk borrower, so some lenders will give you a better interest rate,” explains Jeanne Lee of Nerd Wallet.
- Allow the Dealer to Compete for Your Loan
It’s always smart to get pre-approved with an outside lender. However, a motivated dealer will often get you a better deal. Dealers often have more flexibility than they admit. They’ll offer lending terms, but if you say that you found something better from an outside lender, they might work with you to match or compete with the offer.
This is especially true for luxury vehicles at a higher price point. Auto dealers want in-house financing so that they can make more money off the vehicle you purchase, even if it means lowering their terms.
- Focus on the Terms, Not the Monthly Payment
Of course, you want to make sure you can afford the payments, but after you’ve calculated the monthly payment, focus on the terms, especially interest rates.
Read the fine print as well. Sometimes lenders will penalize you for paying off the loan early or they’ll prevent you from taking a lender to court if they violate the terms. Be wary of the verbiage in the contract, and don’t sign until you’re satisfied with the terms.
- Establish a Good Borrowing History
A strong credit profile is a huge asset for the luxury car shopper. If banks lend you a lot of money, you must prove that you’re good for it. It helps to work with a bank that you’ve been using for some time so they’re familiar with your credit history and financial state. Good borrowers always get better rates.
- Be Familiar with Your Lender
Don’t assume the best of your lender. They’ll investigate you, and you should investigate them. Lending scams are rampant for those of varying credit levels. Predatory loans, which take advantage of the borrower with abusive terms, are among the most dangerous.
Some lenders will also use unethical methods. They might try to impose higher interest rates or include verbiage in your loan contract that’s not in your favor.
Carefully investigate your lender and become familiar with their practices, especially when the loan amount is high. Research the lender by name at your state attorney general’s office, the Better Business Bureau, or the office of consumer affairs. You’ll not only save money on your auto loan, but also have greater peace of mind.