Car loans can be tricky. You need to do your homework, or you’re likely to end up paying too much. Here are some common mistakes and how to avoid them.
Checking Loans Last
Never end the car buying process with financing. Start with it. That way, you prioritize checking your credit report, shopping for great financing deals, and getting a preapproved offer before even stepping into a dealership.
Shopping without Preapproval
Always get a preapproved loan offer before checking cars at dealerships. You’ll know how much you can afford, plus there will be a real offer that the dealer will have to beat if they expect you to get financing from them.
Salespeople will try to combine the cost of the car, financing, your current car’s trade-in value, taxes, fees, insurance, and everything else possible into one convenient-sounding package. Don’t let them. Deal with everything individually and slowly.
Focusing on Monthly Payments
The monthly payment needs to meet your budget. But the salesperson can use this number to manipulate you into a long-term and a more expensive car. Only focus on the total price of the vehicle before you start discussing financing. Don’t tell them your monthly budget.
The ideal loan term is between 36 to 48 months, and 60 months at most if the situation is dire. A longer-term loan means you pay thousands more for the car and risk owing more than the vehicle is worth towards the end of the loan.
Not Exploring Options
Visit multiple lenders like banks, online lenders, and credit unions to get the best financing quote from them. A great loan could mean saving thousands of dollars on a car, getting debt-free sooner, and maintaining a good credit score.
Ignoring Online Lenders
Always get a quote from an online lender. What’s great is that you can explore options without leaving home as online lenders have no expensive overheads and have streamlined loan processes.
Ignoring Credit Unions
Credit unions often offer better loan terms than banks or online lenders. If you can join one as a member, you definitely should. Ask about special programs for first-time car buyers too. Check with them, especially if you have poor credit.