Car financing makes people nervous. And, so they tend to make mistakes. Most of these mistakes are easily avoidable, and it doesn’t even take much effort to get things right. Here are a few common but serious mistakes you must avoid.
Not Knowing Your Credit Score
You must always check your credit score and report before applying for a loan. This is because you need to ensure that your credit score is accurate and that there are no errors in your credit report that are driving your score down. You’ll also be taking away the dealer’s ability to lie about your score and rip you off with a high-interest loan.
Not Setting a Budget
Always work out your budget before applying for a loan. Ensure that you don’t spend over 20% of your take-home on auto expenses, including monthly payments, fuel, maintenance, and insurance. Don’t tell the salesman how much you can afford either.
Not Getting Financing Options in Advance
Always apply to multiple lenders to see the best deal you can get. That way, you can even get preapproved for a loan and know what your payments will be. It will help with budgeting and know which cars you can buy. Then you can use that information to try and get an even better deal from the car dealer.
Not Focusing on The Term
The term of the loan is extremely important. Even if your interest rate is low, you will end up paying a lot of money if your loan term is longer. Dealers can trick you into thinking you’re paying less with low monthly payments.
Becoming a Monthly Payment Buyer
Never discuss the monthly payment with the salesman. The final price of the car is the only number to negotiate. The interest rate and loan should be dealt with separately. Ensure that the loan term is as short as possible and never more than 60 months. Don’t let the dealer talk about monthly payments with you.
Ignoring Early Payoff Penalties
Lenders still offer loans with early payoff penalties. They are not happy to get their money back early because they lose revenue if you pay back sooner. Ensure that this clause is not in your contract.