As the saying goes, your car is the second biggest investment you’ll ever make, behind only your home. Because cars are so expensive, it’s likely that you won’t have enough money in your account to write out a check for your new car.
This is where we need to rely on car financing.
Getting vehicle financing is a rather complicated process with a lot of margin for error on your part. Let’s take a look at five critical car financing mistakes a lot of people make, and how you can avoid them.
First Mistake: Not Taking Advantage of Used Car Dealership Financing Options
Credit unions, banks and more traditional car financers look closely at your credit score in order to determine if they’ll qualify you for a loan. These institutions often become extra wary if you’re looking to buy a used car.
To get a loan, you’ll need to have an outstanding credit score. But what if you have less-than-perfect credit?
Used car dealerships often offer better-than-expected options for finance if you’re buying from their lot.
Second Mistake: Not Knowing Or Understanding Your Credit Score
Even if you’ve already made the decision to get your financing from a used car dealership, you still need to be familiar with your own credit score.
Being aware of this allows them to determine how much of a vehicle you can afford, and the interest rate that you’ll be charged for the financing.
Third Mistake: Not Budgeting Properly
Before you fall in love with a car, figure out how much you can comfortably afford each month and how much of a down payment you’ll be able to put toward the purchase.
Also consider the additional costs that may be associated with your car loan. Being in-the-know will help make sure you don’t get confused when the dealer offers you a multitude of financing options.
Fourth Mistake: Choosing a Long-Term Loan
Always keep in mind that the longer the term of your loan is, the more money you’ll end up paying in interest.
Although the monthly payments will be higher for a two- or three-year loan, you’ll end up saving thousands of dollars in overall interest cost for the life of the loan than you will with a five- or six-year loan.
Fifth Mistake: Paying Too High of an Interest Rate
If you get slapped with a high rate of interest, it’ll directly impact your monthly payments. In fact, it will cause you to drastically overpay on your car over the life of the loan.
Certain less-than-favorable lenders have been know to charge upwards of 20% interest rates.
In-house financing gives you an opportunity to haggle with the dealer on interest, depending on your down payment amount and credit score.
Pay Attention to the Financing
Avoid rushing into a financing agreement and signing papers until you know exactly what you’re signing up for.
The last thing you want is to later find out that you were taken advantage of.
Happy car hunting!