5 Common Mistakes to Avoid When Financing Your Vehicle
When it comes to financing a vehicle, there are various financial products that allow you to acquire a car, including car loans and leases. The most common option for a lot of people is a car loan.
An auto or car loan can be a very helpful option if you’re careful with it. However, even a small mistake can lead you down a road of long loan terms you can’t handle and payments you can’t keep up with.
Let’s take a look at some of the most common auto financing mistakes consumers tend to make.
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Failing to Calculate a Realistic Budget
One of the most essential steps you need to take to ensure you don’t end up regretting your decision is setting a well-informed, realistic budget. Having a budget in mind can make the process a lot easier for you as it narrows down your choices significantly.
Remember to factor in costs like insurance, fuel, maintenance, auto repair, and other car related expenses when setting a budget. Review your financial situation and make sure you can afford to pay back the debt.
Thinking Your Credit Score Isn’t Important
Despite what many people believe, your credit score is actually one of the most important factors in acquiring a car loan. Putting it simply, a higher credit score means you’ll be able to get lower interest rates.
That’s why it’s crucial to check your credit score before applying for any loans. Doing so will give you an idea of what interest rates to expect. You should also look for ways to improve your credit score while you’re at it.
Only Considering the Monthly Loan Payments
It’s crucial to think of the bigger picture when getting an auto loan and not solely focus on whether you can handle the monthly payments at the moment or not. Consider the entire cost of the loan, including how much you’ll spend on finance charges and APR.
The same goes for people that take out a longer loan so they can get lower monthly payments. This is a short-term solution that only ends up costing you significantly more in the long run.
Not Making a Down Payment on the Loan
When financing something as expensive as a car, taking a bit off the top at the start of the transaction can make payments a lot easier in the long term. Look at your financial situation and determine how much you can knock off with a trade-in or down payment.
If you can take off a couple of thousand dollars comfortably by making a down payment, you can save the interest and finance charges on that amount.
Not Getting Preapproved for a Loan
You have to look beyond your local car dealer for a loan if you want better options. One way to do so is by getting preapproved for a loan at different banks, online lenders, and credit unions. This process usually requires a soft credit inquiry which doesn’t impact your credit score.
Getting preapproved before you start shopping will give you a better idea of the rates available to you, helping you get the best deal on a loan.