When the time comes to buy a new or used vehicle, many people fall in love with a vehicle they find on a dealer’s lot before they have given much thought to the loan that will be needed to purchase their dream car.
As a result, they make many mistakes along the way, usually costing them thousands of dollars in interest or even getting turned down for a loan. Rather than let this happen, here are some common car loan mistakes to avoid.
Not Knowing Their Credit Score
When potential buyers try to purchase a car without having any idea what their credit score is, the results are rarely good. When this happens, would-be buyers have no clue about the types of loans for which they may qualify, how much room they have to negotiate, and other factors.
To put themselves in the best possible position, they should always obtain a copy of their credit report and also find out their exact credit score.
Not Having a Budget
If expenses are already tight, adding a car payment to the mix each month may only make things worse. According to Lantern by SoFi, “people who are trying to refinance car loans should always have their budgets planned out well in advance.”
Otherwise, the result will be falling behind on payments, damage to their credit history, and possibly repossession of the vehicle by their lender.
Upside Down Auto Loans
When car buyers go upside down on their car loans, it can lead to numerous problems. For example, since the value of a vehicle decreases over time, taking out a loan that stretches out perhaps seven or eight years is not recommended. Should this occur and the person wants to get rid of the vehicle before the loan is paid in full, the lender will need to be paid the difference between the vehicle’s value and the loan amount.
Also, should the vehicle be in a wreck when the loan is upside down, insurance will only cover the car’s current value.
Not Shopping Around
When a person wants to purchase a vehicle, they tend to quickly accept the first offer from a lender. However, this is a mistake. Instead, they should shop around to see which lenders will offer a loan, who will offer the lowest interest rates and the term lengths from which they can choose.
Purchasing Warranty Options
A common tactic used by car dealers convincing buyers to purchase warranty options has been and always will be an expensive and unnecessary mistake for those buyers who fall for this sales pitch. Often done when a person buys a used car, warranty options usually cover only a few things that may happen to the car. Because of this, it’s always best to decline these offers.
Though getting a car loan can feel stressful and confusing at times, those buyers who do their homework prior to buying and use common sense during the buying process always come out on top.