Auto loans are one of the most sought after loans in today’s economy, and they come from a number of different places, such as credit unions, auto dealerships, and banks. If you are committed to purchasing a vehicle, then you need to do your homework and make sure that you look at each of your auto loan options in order to find the best deal suited for your financial situation.
To help make sure that you choose the best auto loan possible, here are 7 auto loan mistakes that you should avoid whenever purchasing or financing a vehicle.
Auto Loan Mistake 1 – Not Comparison Shopping
Quite a few consumers use credit unions to find an auto loan, while the rest seem to head straight to their traditional lender: their local bank. The key for you is to weigh the pros and cons of all of your lending options, including local car dealerships, loan websites, and different banks in order to secure the best possible loan. There are lots of variables, so understanding all the information is critical.
Auto Loan Mistake 2 – Foregoing a Review of Your Credit
When shopping for an auto loan it is a great idea to look up your own FICO score by accessing your personal credit report. This knowledge gives you the upper hand and ensures that a car salesman cannot sell you short by giving you false information. Better yet, if you notice errors on your report you can then take action and improve your score before applying for your loan. Adverse information on your report can affect the loan rates that you are offered. So ensure you maximize your score however possible.
Auto Loan Mistake 3 – Basing Your Decision on Only the Rate
You should always remember that the rate for your loan is only one part of the component of an application process. Read all of the fine print and take into account the terms of the loan and how much you are using as a down payment. Even a quarter of a percentage point or an extra six months on the term can make a huge difference on the monthly payment.
Auto Loan Mistake 4 – Accepting Deals Too Quickly
In most cases, a dealership will offer you a slightly higher rate in order to gain a profit off of the financing that they, in turn, have purchased from other sources. So, even though you may fall completely in love with one particular car, make sure you still take the time to shop around before jumping on the first financing deal that you are offered.
Auto Loan Mistake 5 – Choosing a Long Term Loan
Cars are valuable assets to own, but they depreciate in value as soon as you drive them off the dealership lot and they continue to depreciate during the span of their lifetime. This is why it’s so important to pay off the loan in the shortest time period possible, even though that makes your monthly payments higher. You will own your car outright sooner and you will end up paying for less money in interest during the term of the loan.
Auto Loan Mistake 6 – Giving More Thought to Payments Rather Than Price
While it is a big bonus to find an auto loan that comes with a corresponding low monthly payment, you still need to make sure that you focus on the overall actual price of the car. Make sure that you know the final price of the car, including all the “extras”, and consider all of the terms before getting too excited about those affordable payments.
Auto Loan Mistake 7 – Spending More Than You Can Afford
People shop much differently for auto loans than they do for larger something like a home mortgage. Before purchasing a home, people shop for months, even years, and calculate all of their finances and what they can afford as a down payment and every month. However, when people purchase a car they rarely put in as much thought and give excuses based on the length of the loan and the car’s value. Take the time to actually calculate how much money you can use as a down payment, and how much you can afford month to month before making that final decision.
Auto loans are something that most consumers will deal with at some point in their lives, but it is not a decision that should be taken lightly. Make sure that you weigh all of your options, delve deeper in terms of the monthly payments and the down payment, and make sure that you can actually afford the car that you are purchasing. The costs of this new vehicle don’t just end here; you still need to consider your insurance payments and ongoing maintenance.
The last thing you want to deal with right now is a loan that you are struggling to pay off!
If you are having difficulties with your automobile payments, talk to a certified debt counselor today, while they can't help with the car payment, they can show you how to free up some cash for your car payment.