Larissa Gasperi
Driving away in a new car is an excellent feeling. However, all that leads to it - the financing, negotiation process, and shopping around - is stressful. It's a big decision. There are lots of considerations. That's why we put together the 10 most common mistakes to avoid when getting a car loan!
1. Not Knowing Your Credit Score
Firstly, knowing your credit score is essential. Financial institutions use credit scores to assess your reliability to pay back the loan. Not knowing your credit history puts you at a disadvantage. You're blind to your own financial situation. Your credit score will give you a good idea of which loans you qualify for and put you in a better place to negotiate.
2. Not Calculating Your Budget
It's all very well knowing your credit history and borrowing power. You also need to know your budget. Before taking out any auto loans, you need to consider your position. You need to make sure that you can afford to pay back the debt. If you don't take the time to plan out your monthly payments, you might default on a payment.
3. Not Shopping Around
Just as you wouldn't buy the first car you see from the car dealer, you shouldn't opt for the first lender or financing deal you're offered. Luckily, it's easier to shop with multiple lenders. Instead of traversing car dealerships, car loans are found online. Find a car loan aggregator like Ausloans Finance, where you can apply for a loan online and get access to more than 40 different lenders. You don't even need to leave your home.
4. Making Too Many Loans Enquiries
This may seem counterintuitive. We just told you that it is good practice to shop around for your car loan. However, the flip side of this is that too many applications or enquiries will result in hard credit checks. This goes on your report. Subsequent lenders will be able to see that you have applied for multiple loans, which isn't a good look.
6. Roll Negative Equity Forward
Rolling negative equity forwards is when you owe more on your car loan than the car is actually worth. It's also known as being upside down. This usually happens when a loan term is too long, and interest rates are too high. Plus, as the value of your car decreases over time, it is possible to owe more than it's worth.
7. Not Having Pre-approval Before Car Shopping
Getting pre-approval on your car loan application is vital to avoiding common car loan mistakes. With pre-approval, you'll have a strong advantage from the moment you enter the car dealership.
8. Paying Too Much Attention to Interest Rates
When it comes to financing, everyone talks about interest rates. Indeed, a low-interest rate will save money. However, it isn't the be-all and end-all of car loans. A lot more comprises a car loan than just interest repayments.
9. Sacrificing Loan Term for Monthly Payments
It can be tempting to get the monthly repayment as low as possible. When you budget, you think about what you can afford to spare on a monthly basis. As most sources of income and expense are calculated month by month, it's easier to budget this way too. However, the risk is that you lengthen the loan term in order to get the cheapest monthly repayments.
10. Not Refinancing
If you do make a mistake on your car loan, it's not the end of the world. The best thing to do is to get out of it. You can do this by refinancing your loan. You may need to wait a few months or a year before refinancing, depending on your loan. However, with some, you can refinance the next day.
5. Not Going to a Car Finance Broker
Yes, you can shop around for a car loan yourself. Yes, you can negotiate a better deal. However, of all the common mistakes, not consulting a broker is one of the most significant. Imagine saying no to free advice - you often don't have to pay your finance broker. Typically, the lender pays them on commission.
Empowering financial dreams, one loan at a time. I bring you expert knowledge on car loans, interest rates, and all things finance.
