For a first-time car buyer and driving it home is as easy as it can be. Little do they know there is more to buying a car than just spotting one you need and seamlessly driving it home. If you don’t have enough cash, you have to figure out how to pay for the car. The alternative and the most desirable solution many car buyers opt for is to take a loan from a financial institution. According to credible data, many owners, nearly 85%, usually take a car loan to pay for the vehicles they want to purchase.
When taking a car loan, and this goes to the first-time car buyers, many of them usually mandate finding an auto loan that suits them best to the dealership office. Unfortunately, this is a big mistake that will cost the buyer extra interest, which would be unnecessary if they took the matter into their own hands. When taking a car loan, it’s always advisable to do some homework before settling for a car. Here are the most common car loan mistakes people make, and this is how you can avoid them.
1. Not prioritizing on financing first.
One of the fatal mistakes that many people make is thinking about the car they want first before thinking about how they will pay for it. The car becomes the number one plan and how to finance the car becomes a distant agenda. It doesn’t seem right, and the process should be reversed whereby thinking about how to finance the car you need should be your priority. Look at your financial situation, look at your budget, your creditworthiness, and other financing options you have before settling for a car. So before you visit the dealership, think about your financial situation, which will give you a clear picture of what to go for when you visit a car dealership.
We are sure you do not just walk in a five-star hotel without being sure you can afford whatever is in there, so follow the same rule when you’re buying a new car using a car loan.
2.Visiting a car dealership without pre-approved finance.
There are the important points and a mistake you should avoid. If you want not to make an auto loan mistake, you need to have a pre-approved offer first. If you have a pre-approved auto loan, you have the upper hand when negotiating the financial terms.
3.Unbundle the car financing deal first
When your first-time car buyer, many dealers will note this, and they will try to bundle all the components of car buying in one single package that’s a mixture of cot of car, the value of the trade-in, and the financing option when they add up the monthly payment.
Though it looks simple, the bad news is this is the worst thing you can do when buying a car. You will get a good deal on just one piece or two pieces of the puzzle but a bad one on another, and you won’t even notice it at all. You will be confused, at the end of the math’s lesson, you will have a bad deal. Always separate these components when you walk into a car dealership.
4.You usually focus more on the monthly payment, a big mistake.
This is indeed very interesting, and I am sure you focus on monthly payments. It’s fine to consider the monthly payments whether you can afford to pay or not. However, it’s a huge mistake to concentrate solely on that part and forget all other elements. That is the greatest mistake when you want to take a car loan that many individuals find themselves doing. Many car dealers usually know everyone wants a loan they can afford, and to do so, they rope you into an auto loan that will take six years to repay and with extra costs which aren’t visible to your eyes. The loan may be extended to a length you’re comfortable in, but when you do your math right, that loan you have undertaken is way expensive and very ridiculous. Always focus on the price of the car and the total cost of financing.
5.Going for a loan that is way too long
On our point, we insisted that you don’t take an auto loan that is extra long. Even if the monthly repayments might look very low, therefore very attractive if you do your math well, that loan is way too expensive and almost double the value of the car. The higher the number of months of the repayment period, the higher the interests rates.
6.Going for one lender alone
When you’re shopping for a car, one of the major mistakes you can make is not shopping for multiple lenders. Just as you shop for multiple car dealers you should shop for multiple lenders. By doing this you might score a better deal and a cheaper one, for that matter, when you get a good car loan finance deal that’s similar to getting a discount on the price of the car. All the lenders have different down payments limits, different auto loan interest’s rates, and additional credit and imitating yourself to one might close an opportunity for you to get an insight into other offers.
7.Stop ignoring online lenders.
Another mistake people make is ignoring online lenders. Yes, you might have a great relationship with your local financial institution, but that doesn’t limit you from exploring other online car loan financial deals. These days you can apply for a car loan online and sail through effortlessly from the comfort of your house.
8.Not making a down payment.
One of the greatest mistakes people make is purchasing a car without making a down payment. When you have a substantial down payment, you will get a good deal on car finance. Remember lenders look at the loan to value ratio, which is the loan’s balance to the resale value of the car. The lower the loan’s value, the less risky the loan is to the lender, and lower risks get better loan rates. When you make a large down payment, you are likely to get a shorter loan term, which automatically means you have lower interest rates and monthly payments. Always make sure the value of the car is higher than the amount you owe the financial.
9.Rolling your existing loan into a brand new one Many dealerships normally tell you they will pay off your current financing and give you a new loan for a car. That is reckless, and it’s an expensive route to take and one of the greatest financial mistakes. What you do not know is the loan hardly goes anywhere, the balance of the loan is rolled into the new loan, and that will mean your loan value ratio is greater than 100%.when the balance is high, the lender will give you a long term making your loan more expensive to accommodate affordable monthly repayments, but this is way too expensive if you give it a thought.
10.Not considering your entire monthly budget when taking the car loan
The biggest mistake many car buyers making when taking a car loan is forgetting they have other monthly budgets they will need to take care of. There is insurance, food, rent, mortgage, expenses, and so much more. When taking any car loan, consider all this, and you should always negotiate for a loan when you have put considerable thought into your monthly earnings. You don’t want your car to be repossessed or damage your credit score because the bills are too much, and you cannot pay.