Driving a new car is one of the greatest pleasures a person can have, but there are many ways to go wrong with this purchase. Many people decide to visit a dealership without considering their finances and cannot afford the vehicle they want. Below are 10 car loan mistakes to avoid.
1. Not Knowing Car Prices
Before you visit a dealership, you should know the average price of the cars you want to look at. Buying something more expensive than you can afford is unwise and will lead to financial trouble.
2. Not Getting Pre-Approval
Getting pre-approved for a car loan is probably one of the most crucial steps you can take before you visit a dealership. Many dealerships will try to get you to fill out applications on their lot, only to get your information and then send it to lenders they work with. They may even make it seem like they’re helping you by suggesting dealerships that will give you approval.
3. Not Knowing Your Credit Score
Before you decide to get a car loan, you need to know your credit score. Not only will this help you get approved for a loan, but it will also give you an idea of what lenders are going to charge for interest. If you have a very high credit score, for example, you won’t have to worry about paying high-interest rates.
4. Not Having a Down Payment
A down payment is another important thing you’ll want to consider. This will prevent you from paying most of your loan off in the first year and having a sizeable amount of money left to pay back in the final years. You should know exactly how much a down payment costs because some loans will require you to put at least 20% of the purchase price or more.
5. Failing to Calculate Your Budget
When someone visits a dealership, they should have a budget in mind and then make calculations to see how much they should spend. Many people mistake going over their budget and regretting it later.
6. Not Shopping Around
Shopping around with different loan providers is a crucial step you’ll want to take when you’re thinking about buying a car. Most dealerships don’t have the best interest rates for car loans, and you should take the time to get quotes from different lenders.
7. Not Considering APRs
When you make a purchase, whether it’s for a house or car, knowing how much you will end up paying in interest is important. You should always compare the annual percentage rate on loans to ensure you get the highest rate possible. Lenders will often advertise the best interest rate on certain loans, and you need to know what that is.
8. Not Going to a Car Finance Experts
When people don’t understand car loans, they wind up taking on loans they can’t afford. They usually decide to go with the first dealership they visit and end up paying higher interest rates and getting a loan that’s not exactly what they wanted. Instead, you should always consult with a car finance expert from a reputable company like Auto Car Loans.
9. Failing to Refinance
Many people who go to a dealership to buy a car wind up dealing with high-interest rates for the length of their loans. These rates will increase every year, and you could end up paying hundreds more in the long run than you would have had you made a few different decisions. Instead, if you know how to refinance your loan, you can save money on interest.
10. Rushing the Procedure
When you see a dealership, you should know that it takes time to get the process started. You should also make sure to look over all the paperwork and fees involved before signing any loan documents. If you’re not sure what to ask, take your time and do all the research you need before making a decision.
While not every car purchase will be a mistake, you should always consider the process carefully before making any decisions. You should also consult with finance experts to ensure that you’re getting the best interest rate possible. When you take all of these steps, you can easily avoid some of the mistakes that can derail your purchase.
About the Author:
Ray is a sought-after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.