Buying a car is a major financial decision. From selecting the right car model to adjusting your finances, a lot of planning is involved. And, if you need to finance that purchase with a loan, there are a few things you’ll need to keep in mind to ensure you get the best deal possible. Steer clear of these car-buying mistakes.
Not Checking Your Credit Score Ahead of Time
Checking your credit score will give you an idea of what kind of interest rate you can expect. The higher your credit score, the lower the interest rate will be. And the lower your payments will be each month. However, if you have a low credit score, you may still be able to get a loan, but the interest rate will likely be higher. Click here to learn more about car loans.
Not Shopping Around For the Best Rate
Don’t just go with the first lender that approves your loan application. Shop around and compare rates from different lenders before making your final decision.
Remember, even a small difference in interest rates can mean a big difference in your monthly payments and the total amount you’ll end up paying over the life of the loan. So, it’s worth taking the time to shop around for the best rate before deciding.
Not Understanding All The Fees Involved
The fees can include an origination fee, which the lender charges for processing your loan application, and a prepayment penalty fee, which is charged if you pay off your loan early. Be sure to ask about all the fees involved, so there are no surprises down the road.
Unnecessary Borrowing
Just because you’re approved for a certain loan amount doesn’t mean you should necessarily borrow that much money. It’s important only to borrow what you can afford to pay back without putting too much strain on your finances each month. Remember that you’ll also need to factor in other expenses like gas, insurance, and maintenance when budgeting for your monthly car payment.
Making a Large Down Payment
You may think that making a large down payment is always better, but that’s not necessarily true. In some cases, it may make sense to put down less money upfront to keep more cash on hand in case of an emergency or unexpected expense. Just be sure to factor in any extra fees associated with making a smaller down payment when comparing loans from different lenders.
Not Reading The Fine Print
Before signing on the dotted line, you must read and understand the terms and conditions of your loan agreement. Pay special attention to things like the interest rate (fixed or variable?), repayment schedule (weekly, bi-weekly or monthly?), and prepayment penalties (are there any?). If anything is unclear, don’t hesitate to ask questions until you’re 100% sure about what you agree to.
Cosigning Without Knowing The Risks
If you have bad credit or no credit history, cosigning might be something you need to do to get approved for a car loan. But it should not be taken lightly, as some risks are involved. For starters, if you cosign on someone else’s loan, their missed payments will show up on YOUR credit report.
Additionally, if they default on their loan entirely, you will be responsible for repaying it. So, if you decide to cosign on someone else’s loan, make sure they are reliable and have a good track record for their finances.
Final Word
Applying for an auto loan doesn’t have to be complicated. However, avoiding the mistakes mentioned above can ensure you get the best deal possible and no regrets later. If you have any questions or concerns, feel free to ask us in the comments!
