Mistakes to Avoid When Applying for a Car Loan
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By PAGE Editor
Many people need to take out a car loan to afford a vehicle, whether it is their first or not. If you have never applied for a car loan before and you are getting ready to purchase a vehicle, there are some dangerous mistakes that you must know about first. Read below for an extensive list of the most common mistakes people make when applying for and taking out a car loan.
Not Checking Your Credit Score First
The amount you are allowed to take out for a car loan is heavily dependent on the state of your credit score. If you go in to apply for a car loan without the correct information and without having first checked your credit score, you may not be able to get the loan amount that you need. In the weeks and months leading up to taking out a car loan, make sure that you work hard to pay off any other debts and get your credit score as high as you can. This will help you get a loan sufficient to pay for your new car.
Failing to Get Pre-Approved
If you skip the pre-approval process, you may find yourself at the mercy of a dealership’s financing process, which will likely not be as good as if you seek a loan from a third-party lender beforehand. By getting pre-approved, you can explore different loan options and compare them the the one the dealership offers. If you find several different loans from third-party lenders, you can bring that proof to the dealership when you are ready to buy and it will give you negotiating power.
Overlooking the Total Cost of the Loan
Although the most important thing to you at the time of getting a loan is the amount of the monthly payments, this does not mean you should overlook the total cost of the loan when all is said and done. You can utilize this site to not only determine your monthly payment, but also to obtain the total loan amount, giving you a clear understanding of the final cost, including interest. There are also additional fees that can add to the total cost as well as the loan term you choose, which can make your interest rate go up.
Not Taking the Time to Shop Around for the Best Rates
One of the worst things you can do when looking at car loans is to just settle after finding one that seems “good enough”. Many car buyers end up settling with a mediocre loan with a bad interest rate, causing them to pay more than they need when all is said and done. The difference between two loans can be the difference between getting to take a vacation with the money saved or not.
Making Too Small of a Down Payment (Or Not at All)
The best thing you can do to avoid as much interest as possible on your loan is to save enough of your own money to make a large down payment on your car upfront. This may take months or even years to do, but making a down payment that is too small means you will only have to pay your loan off for longer with more interest building up. Additionally, not making a down payment at all means your loan will have to be much bigger and will also have a high interest rate.
Choosing a Longer Loan Term
The longer the loan term, the more interest you will accumulate, making it harder and harder to pay the loan off in time. Although sometimes the idea of having a shorter term with higher monthly payments seems stressful, you will end up paying less in the long term.
Skipping the Fine Print
No matter how long it takes, you should always read the fine print on a loan. If the language is too complicated for you, hire a lawyer for a day to read it for you and explain it to you in layman’s terms. It is very important that you have a complete understanding of the loan you are agreeing to so that you do not end up experiencing problems down the line.
Not Negotiating the Car Price First
You should never take out a car loan before you first have a thorough understanding of the amount you need. Don’t get caught up in the monthly payment negotiations and forget to discuss the total price you will have to pay for the car. Start any conversation with a dealership with a discussion about the total price.
By avoiding these common mistakes, you should have a smooth car buying and loan application process.
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