Purchasing a new car is an exciting and tumultuous experience. It’s easy to feel overwhelmed as you go through the process of choosing your new vehicle and applying for a loan that won’t leave you in the red as you pay it off. Thankfully, there are a few easily-avoided pitfalls that can save you money and stress.
Extending the payment schedule
While lower monthly payments spread out across a longtimeframe may seem like a clever way to get into the car of your dreams, the truth is that it will end up costing you more in the long run. To begin with, the longer you owe money on your loan, the higher the interest. Paying off a loan in 12 months will cost more at the beginning, but it will limit the time that the interest has to compound on the total amount of the loan. Additionally, cars depreciate quickly, so the longer you drive your vehicle, the less it is worth. If you choose low monthly payments over a long span of time, you’ll end up adding cost to something that’s losing value.
Forgetting to check your credit score
In the world of loans, your credit score is king. Lenders use this figure to determine how likely it is that you’ll be able to pay off the entirety of your loan. Financial institutions are unlikely to hand you a bundle of cash if they suspect you won’t be able to pay it back in full. There are several free sites that allow you to check your credit score so you know what to expect from your loan. Additionally, if your credit score is less than optimal, you can change your spending habits before you apply for an auto loan to increase your score and secure a more favorable deal.
Taking a lower down payment
It’s easy to take a deal that saves you money upfront. Fewer dollars leaving your pocket can only be a good thing, right? Unfortunately, in this case, the opposite is true. The less money you put down at the beginning of your loan term, the more you’ll end up owing in the long run. If you consider the added interest —usually a percentage of the total cost of the car — the amount you’ll end up paying in addition to the base loan is substantial. If you can, consider saving your money for longer than you initially planned to be able to afford a larger down payment. It will save you bundles down the road.
Waiting too long to check rates
Knowledge is power, especially when it comes to finances. Wading into the murky waters of auto loans is far less intimidating if you’ve done your research, so be sure to see what product from your financial institution can guarantee you the best rates.
Shopping for a vehicle is thrilling, but it can feel like a minefield if you aren’t equipped with the proper knowledge. If you use these tips as guidelines, you’ll navigate the loan landscape with the grace of a seasoned pro and secure the best possible deal.