Buying a car is a huge financial commitment, and it’s not something you should take lightly. Before committing to a car loan, you should make sure that you understand the terms and conditions associated with the loan. Unfortunately, many people make mistakes when it comes to car loans that can be quite costly in the long run. In this article, we will discuss how you can avoid some of the most common mistakes when it comes to taking out a car loan.
1. Don’t Appy to Too Many Lenders
It may be tempting to apply to multiple lenders in hope of getting the best deal. However, this is a mistake that could backfire. Each time you apply for a loan, the lender will do a “hard pull” on your credit, which can negatively impact your credit score. If you do apply to multiple lenders, try to do it within the same few days so that they are all lumped into a single hard pull.
2. Watch for Upfront Fees & Other Costs
Many lenders will try to tack on additional fees and costs that can quickly add up, such as an origination fee, a processing fee, or even an early payment penalty. Make sure you read through the entire loan contract to make sure you are familiar with all of the fees and costs associated with the loan that you are taking out.
3. Calculate Total Loan Cost
The total amount of interest you will pay over the course of the loan will be the biggest factor in the total cost of the loan. Before agreeing to a loan, make sure you do the math to calculate the total amount of interest you will be paying. This can be done by taking the loan amount, the rate of interest, and the term of the loan and plugging those numbers into an interest calculator online.
4. Don’t Overspend on a Car
It’s easy to get carried away when it comes to wanting the newest and fanciest car on the market. But it’s important to be realistic about the car you can actually afford. Your car payment shouldn’t be any more than 20% of your monthly pre-tax income. Look at the total figure you can afford to spend, and then look at the interest rate and see which models and makes fall within that range.
5. Be Prepared to Negotiate
When it comes to financing, dealerships are often more flexible than banks. Before you sign anything, ask the dealer if they can offer you a better deal. You may be surprised at how willing they are to offer incentives and even lower interest rates in order to get your business.
6. Shop Around
Most people make the mistake of assuming that a dealer’s offer is the best. But the truth is, you can often find better deals with other lenders. Make sure you shop around to compare rates and terms to make sure you are getting the best deal.
7. Read & Understand the Contract
Before signing any contract, make sure that you read and understand all of the terms and conditions. Pay close attention to the details, such as the interest rate, the length of the loan, and any fees and penalties. If you don’t understand something, ask questions. Make sure you are completely comfortable with the contract before signing.
8. Consider an Extended Warranty
Most dealerships will offer you an extended warranty. While this may add to the overall cost of the loan, it can be worth it in the long run. An extended warranty can help cover the cost of repair if something breaks down after the original manufacturer’s warranty has expired.
By following these tips, you can avoid some of the most common mistakes when it comes to financing a car. Just remember to do your research, read all the paperwork, and don’t rush into a loan without shopping around for the best deal.