Buying a new car can be a stressful part of life especially when you do not have enough money saved up to purchase it flat out. This is the case for most people, which is why auto loans are such a big market. Just like anything else you buy in life, it is important to shop around and know what you are looking for before you commit to anything. Doing the research is important because there won’t be a JCPenny for cars where you can just go in and see all the best deals on your favorite brands. Lucky for you, we have done some research of our own and come up with a list of some of the most common mistakes people make when they are financing a new car.
Knowing Your Stats
You would be surprised at how many people have no clue what their credit score is. This is the first thing you should figure out before making any large purchases in life that may require funding or a loan. There are multiple ways to get a free copy of your credit score. Without this information, you are basically at the hands of the dealer when negotiating loan terms and interest rates. That said, don’t go overboard with telling the dealer all your personal information or what your budget is. If you keep your maximum monthly payment amount to yourself, there is a much better chance you will walk away under budget. Don’t forget, you can always try to negotiate a lower interest rate with a dealer who offers in house financing.
Go for the Short Term
It can be tempting to create a plan where your monthly payments are lower but the length of the loan is longer. If you truly cannot afford to make payments any other way then this may be an option for you, but at the end of the day, you get slammed with interest payments that pile up over time. If possible, go for the short-term loan, your wallet will thank you. Another thing that many people fail to investigate, is whether or not there is a penalty for paying off your loan early. Often times, banks are counting on those interest payments racking up and want to cash in on your loan either way even when you can afford to pay it off early. Just be aware of any guidelines and penalties before you sign anything.
Add On Services
Another common mistake when it comes to auto financing is purchasing additional services such as warranties or insurance for certain things and rolling the financing of these items into your loan. These types of services can really increase interest payments and should be paid for separately. It has been shown that more than 40 percent of most dealerships’ after-market income is generated by these add on services. Even further, most of the policies that you would be including, can be purchased from outside carriers at a much more discounted rate.
Take Your Time
The number one mistake people make when financing a car is signing paperwork too quickly. There is no rush to commit to or sign anything even if the dealer is making you feel like this is a limited time offer. Chances are, if he wants your money, he will still accept it the next day.