Most people get excited about the prospect of buying a car. It’s fun to look at the hottest new models, because they look fantastic!
But it’s a smart move to have your financing in order before you hit the new car lot. You can ensure you make the best choices on car financing if you avoid the mistakes listed below.
Not Understanding What You Can Afford
It’s vital to know what you can afford before you go shopping. Lenders like to tell you the car payment they believe you can afford based on your income. But it’s your job to figure that out, not theirs.
So sit down, review your budget and income, and figure out what you can pay. Don’t just consider the monthly payment.
Think about how much you’re going to put down and estimate your yearly maintenance. The last thing you need is to sign a car loan, buy a car, and discover you can’t afford to eat because of your car payment!
Not Getting Pre-Approval
Every car dealership offers to finance, but that option can be a mistake. Car loan rates at dealerships can be higher than what you can find at a credit union or other third-party financing institution.
Plus, dealerships may steer you towards financing that pays the dealership or salesperson more. They’re looking after their interests, not yours!
The smartest thing to do is go car shopping with a pre-approval loan. When you have a pre-approval, you know exactly how much you qualify for and what you can afford.
Remember that car shopping can be an emotional activity: It’s too easy to make a terrible financing decision when you see that gorgeous new vehicle sitting in front of you. Doing your financing separately from the buying decision could save you a lot of money over time.
Not Checking Several Sources For Auto Loan Rates
When you shop for a car loan, it’s critical to comparison shop. Don’t take the first car loan offer you see.
You’ll discover that interest rates, conditions, and terms vary from lender to lender. Sometimes, one loan that looks just like another could in reality save you thousands. But you have to do the comparison shopping to spot the differences.
Negotiating The Car Payment
A huge mistake is to negotiate the vehicle’s monthly payment rather than the full purchase price. This is a common trap that car dealerships set to get more money out of you.
If the car dealer asks what you want to pay per month, don’t say anything. They’ll assemble a car loan deal that reduces your payment but charges you more interest over the loan’s life. Take a look at these offers:
- $650 per month for 36 months
- $350 per month for 72 months
Both of these offers are for a $20,000 car loan. If you’re shopping based on the monthly payment, you’re going to jump at $350 per month.
But the dealership may neglect to inform you that you’re going to pay interest for 36 more months. That means you’ll end up spending thousands of dollars more for the same car.
If you shop based on the monthly payment, you’ll pay more over time. Remember to negotiate the full car price and not pay each month.
Not Negotiating the Extended Warranty
It’s debatable whether you should pay for an extended warranty. Some buyers like the peace of mind of having repairs covered for more than three or five years.
However, most people have no idea that you can haggle on the price of the extended warranty. You may also snag a cheaper extended warranty deal at a credit union rather than the dealership.
You can get a great deal on car financing, but it’s vital to avoid making the common blunders we have mentioned here.