10 Common Mistakes People Make With Car Financing

Getting a car loan

Shopping for a car loan can be a draining experience. Oftentimes car buyers make preventable mistakes when they take out a loan for a new vehicle. Here are some of the most popular mistakes made when financing a vehicle.

Searching for a Vehicle

1. Not Researching Car Loan Options

When you allow once source to decide the best loan for you, its difficult to compare options. Limiting your options may prevent you from finding other better offers.. Do your homework before visiting the dealership knowing what is the lowest interest rate you are approved for and even get pre-approved before visiting a dealer. Its important to note that financing from a dealership isn’t your only option. However dealers often have a range of lenders that they can provide you with options for, and a dealership has the convenience of providing a simple and seamless car loan approval process. Your bank, a broker or online searches will reveal car finance options available to you. 

2. Focusing too much on Car Loan Repayment

An important factor other than the interest rate on a car loan is the term or usual length of a car loan. A long term may seem like a great way to reduce your car loan’s monthly payment, but care must be used as a longer loan term, all things equal, will mean that you end up paying more in the end because of interest. Also, car loans with longer term periods can also sometimes have a high-interest rate attached to them too. Some loan providers offer loans of a certain length as standard, and its up to you to ask about shorter loan terms. Cars depreciate fast, so taking a smaller loan term allows you the most value if you’re going to use the vehicle as a trade-in vehicle for your next car purchase. The choice of loan term will come down to how long you want to keep the car, if you are comfortable owing more on your car loan than a car is worth, and your level of comfort with the loan repayment. 

 3. Skimming over the fine print on a car loan 

A car loan is more an interest rate. Look out for exit fees, monthly fees, set up fees, direct debit fees and what your penalties are if you are late or are having some difficulty making a payment on time. How easy is your car loan provider to work with. Take time to know what you’ll be putting down and the terms of the loan before committing to the loan.

4. Jumping Aboard the Dealership Financing Offer Too Quick

Generally, dealerships offer a higher interest rate as they borrow money and then add a rate to it to make a profit. This makes it that much more important to shop around. Having multiple lenders quote your your next car purchase is a great tip to help you get closer to finding the best car loan for you .

5. Focusing on Payments Over Price

If you’re too focused on low monthly payments instead of the price of the car, you could end up paying more. Know the overall price of the car and take time to consider the interest rate, terms and length of the loan closely. Remember it may be easier to negotiate a $1000 discount on a vehicle or purchasing a lower priced car rather than accepting an interest rate you are uncomfortable with and that may end up causing hardship 

6. Buying the wrong car 

While getting the best car finance deal is important, if you buy a car that turns out to be a lemon, or that does not suit your needs such as a growing family, or the way you intend to use the vehicle, or find you have high repair costs then you may decide you have made the wrong purchase. 

7. Financing Add-Ons That Can Be Bought Separately

Many add on insurances and other products can be bought from different sources rather than your loan provider. Extended warranties such as paint sealant or fabric protection are usually unneeded or can be purchased with cash on their own. Insurances such as Gap insurance and CCI are useful however shopping around will show a wide range in prices for what could be very similar products. 

8. Not being open to putting down a deposit

Financing the full purchase price will often mean that you owe more on your car loan. Interest will be higher and you will have less equity in your vehicle. This means that you may find yourself in a situation where you owe more than the car is actually worth. If you intend on selling or trading the car in before the loan is paid off. While this may help you get into a car loan without any deposit it could ultimately 

Ultimately, preparing for the car buying and financing process will help you to get the best deal possible. By reading and refraining from all of these things, you can avoid making costly mistakes when it comes to purchasing a vehicle. Good luck on your journey, enjoy it as buying a car is one of the most satisfying and enjoyable purchases you are likely to make in your life. 

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