You’re ready to buy a new car, and you’ve decided that financing is your best option. Good choice! Auto loan financing can be incredibly beneficial: it allows you to get the car of your dreams today, rather than waiting years until you have enough cash in the bank to pay for it.
But some mistakes people make during auto loan financing can cost them dearly—and we don’t want that to happen to you. This article will share some mistakes we see all the time—and how they’re costing people money. We’ll also give you some tips on what not to do so that you can avoid those same mistakes and save yourself some money!
1. Not Shopping Around for the Best Loan Terms
It’s important to remember that different lenders will offer you different terms, and it’s up to you to find the one that’s right for your needs.
For example, some lenders will offer you a lower interest rate if you have a good credit score. So if your credit score isn’t great, it might be worth looking into loans from alternative lenders who don’t focus on credit scores as much. You can also consider credit unions, which are typically more willing to work with borrowers who don’t have the best credit. Learn more about credit unions for car loans here.
Another common mistake is not negotiating with lenders. Just because a lender offers you a certain loan doesn’t mean you have to accept it. It never hurts to try and negotiate for better terms!
2. Not Reading the Fine Print
Be sure to read over your loan documents carefully before signing anything. This way, you’ll know exactly what you agree to and won’t be surprised by any hidden fees or terms later on. Make sure you do not miss out on important terms like the APR and other fees. If you do not fully understand what you are signing, ask for clarification from your lender or credit union representative before you sign any documents.
3. Borrowing More Than You Can Afford
Just because you’re approved for a certain loan doesn’t mean you have to borrow the full amount. In fact, it’s often best to borrow less than you’re approved for so that you don’t end up over your head in debt. Be sure to take a close look at your budget before taking out an auto loan, and only borrow as much money as you can reasonably afford to pay back.
4. Not Factoring in All the Costs of Ownership
Buying a car is more than just making monthly loan payments—you also have to factor in costs like insurance, gas, and maintenance. If you’re not prepared for these additional costs, you could struggle to meet each month’s ends. Factor these costs into your budget before taking out an auto loan to be confident you can afford the total cost of ownership.
5. Failing to Consider the Total Cost of the Loan
When looking at auto loans, it’s important to consider more than just the monthly payment. The total cost of the loan is just as important.
For example, let’s say you’re considering two loans—one for $10,000 with a 4% interest rate and one for $12,000 with a 6% interest rate. The monthly payments on both loans would be about the same, but over the life of the loan, you’d pay much more in interest on the second loan. That’s why it’s important to consider the total cost of the loan, not just the monthly payment.
Auto loan financing can be a great way to get the car you want—but only if you do it carefully. Be sure to avoid these common mistakes, and you’ll be on your way to getting a great deal on your next car loan!