Whether purchasing a new or used car is a significant decision. Whatever you choose, you don’t want to rush into making any buying decision without considering the possible drawbacks and issues associated with getting a car loan.
Here are the six most common car loan mistakes that can cost you money after buying an automobile.
Not Considering The Best Car Finance Possible
If you show laziness and simply choose the first car loan offer, you’ll be making a big mistake by missing out on the better deal awaiting you elsewhere. Thus, selecting the best car finance option with beneficial terms is crucial.
To do so, check the terms offered by multiple lenders, as there’s a high possibility that some may offer the lowest possible interest rates or other term durations.
2. Being Unaware Of Your Credit History
Being unaware of your credit score before opting for a car loan is not a smart decision. Knowing your creditworthiness will give you a basic idea of the loan terms you’re eligible for and things you can expect during loan negotiations.
If you find the credit score is too low and there’s no rush for you to buy the car, you can take time to elevate your score for a better deal later. You can use multiple platforms available on the internet to check your credit report. Such a report can help you identify the errors and ways by which you can improve your score.
3. Not Knowing Your Budget
Before applying for a car loan, it’s crucial to know your financial condition and determine whether you’ll be able to repay your debt or not.
If you make the mistake of not planning out the way by which you’ll add the amount into your monthly budget, you can face financial troubles and fall behind your payments.
This could result in you paying extra money for late charges, affecting your credit score and negatively impacting your chances of getting any other future loan.
The best solution is to compare deals from auto loan companies for free and determine the deal that fits your budget and won’t affect your financial stability.
Your car’s value depreciates over time, so you are most likely to go heads over heels on your loan. It means you’ll owe more than your car’s actual worth. Although it isn’t so bad, it may result in trouble depending on your situation in the future.
For instance, if you want to get rid of your car before paying off its loan, you’ll not only have to trade or sell it but also pay the remaining balance to the lender after deducting the car’s current value from the outstanding loan amount.
On the other hand, if you have an accident that totally damages your car while you’re still going heads over heels on loan, the insurance company may only pay for the car’s net value. The difference will be paid off from your pocket.
You can make a sizable down payment or pick a short loan term to quickly repay the debt to avoid such an issue later.
5. Picking An Extended Loan Term
Although you may find it relaxing to have lower monthly repayments on your car, a longer loan duration means that you’ll have to pay more interest.
Longer car loan terms typically come with higher interest rates. Plus, the longer the loan period, the higher the chances of reduction in your car’s value to a point where you go heads over heels on the car loan.
Typically, five years is the maximum loan term for most car loans. To avoid making this mistake, choose a shorter loan term duration with a bit higher monthly amount, provided it doesn’t affect your financial condition.
6. Not Having Any Pre Approved Loan Offer
If you only rely on your car dealer for the loan, you’ll miss out on the better deals out there. Your chances of getting the best car loan deal elevate when you get pre-approved for the loan by multiple online lending institutions, credit unions, and banks.
It’s crucial to do so before you start looking for a car as it will give a proper idea of how much loan amount you’ll be approved for. Also, you’ll get to know the car loan interest rate that you’ll be eligible for. This procedure mainly involves a soft credit inquiry, which won’t affect your credit score.
Make Smart Car Loan Choices
If you’re planning to bring home a brand new four-wheeler by financing it from any lending institution, you’re about to make a significant decision. To make sure that everything goes right, you must learn from the mistakes of others.
From this comprehensive guide on the most common car loan mistakes, you can learn what not to do and save yourself a lot of money.