For the uninitiated, navigating the credit and lending industries can feel like being a fish out of water. There are all sorts of terms to learn, and frankly some things just fly in the face of common sense.
As an example, the San Francisco Chronicle recently revealed some ways to save money on your car loan. And one of the top ways to save money on your loan is actually… to borrow more money.
This is one of those "huh?" moments that actually makes sense if you think about it. Banks and lenders ultimately make money off of interest rates. The way they see it, a longer loan is a good thing. If everyone paid back their loans in a few months, they wouldn't be able to collect on all those interest rates.
So bigger loans naturally take longer to pay off and thus are viewed more favorably. A smaller loan will often carry a larger interest rate, as the bank will hope to squeeze money out of you before you have a chance to pay it off.
In this scenario, it's not the best move to simply borrow a few thousand dollars and pay the rest in cash. You'll likely be hammered on those interest rates.
Instead, the news source recommends sticking with your current vehicle for a few more months as you save up those last couple thousand dollars. It's not the same instant gratification as getting approved for car financing, but you'll likely be better off in the long run.