Financing a car can be stressful, and you could end up making mistakes that could cost you big in the long run. Learn to avoid these common mistakes, and you’ll be able to get the best deal possible.
1. Don’t skimp on a down payment. It might seem smart to skip the down payment, but no money down financing is always more expensive. Trying to put 20% down for a $30,000 new car, you could save over $100 a month on your payments and almost $1,000 in interest.
2. Don’t take out too long a loan. If you take out a longer loan in order to lower your monthly payments, you might end up paying more than your car is ultimately worth. Another way to avoid high monthly payments is just to buy a cheaper car. Try working backwards from your desired monthly payment, with a 48 month loan, and see what price you get.
3. Don’t ignore your credit score. Don’t believe the dealer who says your credit score doesn’t matter. People with bad credit pay much more in loan interest, and people with good credit might qualify for extremely low interest rates. To get the fairest deal, know your credit score, and any promotions before you get to the dealership.
4. Don’t be fooled by a variable rate loan. A variable rate loan lets you pay less interest at first, but if your interest rate suddenly jumps, and your income doesn’t, you could default on your payments and ruin your credit. Why take the risk? Fixed rate loans aren’t that much more expensive, and you’ll always know what the monthly payment will be.
5. Don’t take the first loan you’re offered. Always compare the interest rates offered by banks, credit unions, online lenders and dealers. Pick the one that saves you the most.
6. Don’t miss out on pre-approval advantages. Don’t miss an opportunity to get pre-approved for a loan. With pre-approval, your lender gives you the entire amount to cover the cost of a vehicle. That means all you and the dealer need to negotiate is the selling price of the vehicle.
7. Don’t roll taxes and fees into the loan. It’s tempting to roll the fees and taxes up into your loan, but then you’re paying interest on them. It’s best to pay all the fees upfront with your down payment. And if any fee is unclear, ask.
8. Don’t be afraid to say, “No.” You might be offered overpriced extras like gap insurance, undercoating or an extended warranty. But unless you’ve done your homework on them, you won’t know if they’re a good deal. Don’t be afraid to say, “No.” And if an extended warranty is right for you, you can get a reputable one at any time before the original warranty expires.
With the right amount of preparation and research, you’ll avoid these mistakes, save money, and be driving away in your new car in no time, with a big smile on your face.