Home Auto Financing Common Mistakes to Avoid When Financing a Car

Common Mistakes to Avoid When Financing a Car

Getting a car financed can seriously take a toll on your mind and pocket in the long run. Learn to avoid these common mistakes and get a better deal for yourself:

Avoid skipping the down payment: It may sound tempting but no down payment financing can turn out to be more expensive. If you make a 30% down payment on a $40000 new vehicle, you can end up saving over $100 a month on your payments and approximately $1000 on interest. 

Avoid long term loans: Ideally, you should avoid taking loans spanning over a long duration. This helps you spend less in monthly payments. One more way to avoid long term loans is to opt for less expensive cars. To avoid long term loans, you first need to write down a budget that you’ll be able to stretch over a certain period of time. If your budget can’t match the loan terms, you may want to revisit the plan.

Never compromise on your credit score: Never trust your dealer when they say that your credit score does not play an important role. Customers with poor credit often end up paying more in loan interest and customers with good credit are automatically eligible for lower loan interest. So, to avoid this rookie mistake, always know your credit score before making the purchase. 

Do not fall for the first offer: Always compare interest rates given by banks, credit card companies, online lenders and dealers. Opt for the one that saves you the most. Don’t just rush to sign the papers and be in a hurry to own the car. A smooth and diligent process will make sure you have a better car-owning experience.

Don’t forget to negotiate loan terms: In order to close a sale, many dealers haggle over interest rates to offer you the best deal possible. This will happen, provided you have a decent credit score and will depend on the down payment amount.

Never get fooled by a variable loan rate: A variable loan rate might sound tempting at first, but there is a catch. In case the interest rate is hiked a few years down the line, you may have to pay more interest to your loan. Even worse, if your income doesn’t increase, it would make it difficult for you to make duly payments and could, eventually, ruin your credit score. Fixed loan rates are not that expensive and remain the same until the end of your loan. 

Avoid combining taxes and fees into loans: It may sound like an attractive proposition, but strictly avoid doing this, because you may end up paying interest rates for them. It is advisable to pay all the fees upfront alongside your down payment. If you have any doubts regarding any fees, simply ask.

Learn to say no: While looking for a loan, you may be offered deals in the name of gap insurance, undercoating or even extended warranty. However, if you have done your research well, you can avoid these deals. What’s important is to learn to say no to deals that don’t really benefit you. Dealers and lenders will try their best to close a sale on add-ons but it’s only relevant to you if you absolutely need it.