If you’re in the market for a new car, there are many common car loan mistakes you should try to avoid. Most people shop for a new car first, then worry about the loan. Actually, you should look into getting a good auto loan first and then begin your search for a vehicle. Many borrowers make expensive mistakes with their auto loans. We’d like to try to help them avoid those errors. Read on so you can steer clear of some common auto loan mistakes.
1 Not shopping around for car loans
This is one of the biggest car loan mistakes many borrowers make. Just taking the first deal that comes along. This can mean they either accept the financing a dealer is offering or go to their big-box lender for an auto loan without comparison shopping. It’s always smarter to shop around and compare car loans from various lenders, including your local credit union. Getting a terrific deal on car loans is like getting a discount on the price of the car. There’s nothing worse than experiencing buyer’s remorse with your auto loan when you realize you could have scored a much lower rate and better terms with another lender. If this has happened to you, it’s not too late to refinance your auto loan with Choice One Community Credit Union. Remember, credit unions frequently offer better auto loan rates than banks and other lenders. Why? Because credit unions return profits to their members in the form of lower interest rates on loans and lower fees.
2 Selecting car loans based solely on the rate
Although the lowest auto loan rate may quickly catch your eye, it’s only part of a good car loan deal. There are many other things to consider when shopping for car loans. They include the term of the loan, the fees involved, any early payoff penalty and the required down payment. Deciding just based on the rate is a typical car loan mistake.
3 Not getting preapproved for a car loan before you begin car shopping
As we mentioned in our opening, shopping for the vehicle before the loan is tops when it comes to mistakes with car loans. Auto loan preapproval from your credit union or another lender gives you an advantage when negotiating a deal for your car. It makes things less confusing and puts you under less pressure to accept a dealer’s financing offer.
4 Not considering the impact of your credit score on car loans
Before applying for any type of loan, including an auto loan, you should review your credit rating. The better your credit score, the better the interest rate you will be eligible for. A lower score will tell a lender there is a risk in lending you money, while a higher score will show you are much less risk. By checking your report in advance, you will know what the car loan lender will be seeing when they check your report. It will also give you an opportunity to be proactive and fix any errors you may find.
5 Concentrating on monthly payment over the price
If you are more focused on the lowest monthly payment, you may not be paying enough attention to the actual price of the vehicle. Try to avoid telling a dealer what you want to pay, because they may just start with that number. A car salesperson may try to lure you with the promise of meeting the low monthly payment you’re looking for. In reality, rather than negotiating a lower price, they may accomplish this by offering you a very long term. Remember, the car salesperson wants you to focus only on monthly payments so they can maximize their profit. In the end, you may be paying much more for that vehicle than you thought. Longer-term car loans usually come with a higher interest rate as well. Those extra payments and higher interest can really add up. To determine the total cost of the vehicle, multiply the monthly payment by the number of months in the term and then add in your down payment. This total cost can help you compare different loan offers.
6 Not budgeting in advance
Everyone has their own comfort level when it comes to a car payment to fit their budget. Taking a car loan without evaluating your budget or having an accurate idea of your monthly expenses can leave you with a payment that you just can’t afford. Car loans are contracts and you are obligated to make the payments. Failing to make your payments may not only ruin your credit score but may also result in repossession of your vehicle. You should try to avoid this costly mistake and others on car loans or your overall financial well-being. Always determine a payment that fits your budget in advance of shopping for a car or car loans.
7 Not making a down payment on your auto loan
Putting a down payment on your new vehicle will help your loan-to-value (LTV) ratio. Lenders always consider the LTV when making a car loan deal. The lower the LTV, the lower the risk to the lender and the better the rate and terms. In addition, a down payment may enable you to afford a payment with a lower term. This may provide you with a better interest rate.
8 Avoid financing the costly car loan extras
This means avoid financing auto loan taxes, fees and other add-ons that may impact your LTV and increase your interest rate. Remember, you want to pay as little interest as possible over the life of your loan.
9 Failing to refinance bad car loans
This is another one of those car loan mistakes you should try to avoid. You got a bad deal and you haven’t done anything about it. You can refinance your auto loan almost immediately if you realize you got a sour deal. Check to make sure you don’t have any pre-payment penalties and then speak to your local credit union or check out Choice One Community Credit Union to get a better deal.
We hope our overview of mistakes on car loans will help you to shop smarter and enjoy a smoother ride you can afford!