Financing a car can be stressful and you could end up making mistakes that could cost you dearly in the long run. Learn how to avoid these common mistakes and you’ll be on your way to getting the best deal possible.
1. Don’t skimp on a down payment. Skipping the down payment may seem like a good idea, but financing without a down payment is always more expensive. Trying to put 20% down on a $30,000 new car could save you over $100 a month on your payments and almost $1,000 in interest.
2. Don’t take a loan that’s too long. If you take out a longer loan to lower your monthly payments, you could end up paying more than your car is ultimately worth. Another way to avoid high monthly payments is to simply buy a cheaper car. Try working backwards from your desired monthly payment, with a 48 month loan, and see what price you get.
3. Don’t ignore your credit score. Don’t believe the dealer who says your credit score doesn’t matter. People with bad credit pay a lot more interest on loans, and people with good credit can benefit from extremely low interest rates. To get the fairest deal, know your credit score and any promotions before you go to the dealership.
4. Don’t be fooled by an adjustable rate loan. A variable rate loan lets you pay less interest at first, but if your interest rate suddenly rises and your income doesn’t, you could miss your payments and ruin your credit. Why take the risk? Fixed rate loans are not much more expensive and you will always know what the monthly payment will be.
5. Don’t take the first loan you’re offered. Always compare interest rates offered by banks, credit unions, online lenders and dealerships. Choose the one that saves you the most.
6. Don’t miss the benefits of pre-approval. Don’t miss an opportunity to get pre-approved for a loan. With pre-approval, your lender gives you the full amount to cover the cost of a vehicle. This means that all you and the dealer need to negotiate is the sale price of the vehicle.
7. Do not include taxes and fees in the loan. It’s tempting to include fees and taxes in your loan, but then you pay interest on them. It is best to pay all fees up front with your deposit. And if a fee isn’t clear, ask.
8. Don’t be scared to say “No”. You may be offered overpriced extras like gap insurance, underlay, or extended warranty. But unless you’ve done your homework on them, you won’t know if they’re a bargain. Don’t be afraid to say “No”. And if an extended warranty is right for you, you can get a reputable one anytime before the original warranty expires.
With the right amount of preparation and research, you’ll avoid these mistakes, save money, and be back in your new car in no time with a big smile on your face.