Are you planning on buying a car and need an auto loan? There are three financial mistakes to avoid when you’re in the market for a new car, truck, pickup, or SUV that can make a big difference in your bottom line.
Car Buying Mistake #1: Not Shopping Around For A Dealer
Why is this a financial mistake? It’s not just that you want to compare prices. That truly is one of the most obvious financial benefits of shopping around for a car dealer. But you need to know more than just the price of the vehicle.
If the car or truck is still under warranty, will the dealership honor it if repairs are needed? If not, where can you get warranty work done? If you live in an area where getting warranty repairs would force you to travel longer distances, a car dealer who cannot support you for that type of work might not be the one for you.
For some transactions, that does not matter. But for others, it can make all the difference.
Mistake #2: Taking The First Financing Offer You Get
Let’s be straight here; anyone who does a quick comparison shopping search for auto loan interest rates will get different numbers depending on credit history and scores, whether you are asking the lender you always use or a new one, etc.
Your car dealer will try to offer you dealership financing. Many people have very strong opinions about whether or not you should buy a car with dealer financing. This type of financing has a terrible reputation in many circles.
Instead of telling you “Don’t do dealership financing!” we would instead encourage you to get the rates and terms from your dealer and compare them with what else you find on the market. That should tell you everything you want to know about whether or not you should buy a car with dealer financing or not.
In the same way you don’t buy a car without test driving several models, you do not want to settle on a lender without seeing who can offer you the best deal. Play one lender against another, telling them the lower rates you have found elsewhere and ask them to match--if they can.
Auto Loan Mistake #3: Not Knowing The Terms Or Cost Of Your Loan
Some borrowers enter into financial commitments not realizing there may be rules that can affect their plans for paying off the vehicle early, for example. Ask your lender directly if there are prepayment penalties for your loan and ask what triggers those penalties.
Experian.com issued a report in 2018 stating that the average car loan was six years. Do you know how much your loan costs you when you add principal and interest for the entire term of the auto loan?
If not, ask your lender directly how much your loan will cost you for the full term and ask to have the loan broken down for you in terms of how much principal versus how much interest you will pay every month.
A six year auto loan will cost you more than just the interest; your car will depreciate in value and by the end of most longer car loans, the borrower owes more than the car is worth.
That is a very important thing to keep in mind, especially if you plan to trade the vehicle in at some point. A six-year loan may have you paying on a vehicle you cannot get a fairer trade-in on compared to trading in earlier.