5 Car Loan Mistakes Most People Make
Caught up in all the excitement and uncertainty of shopping for a new car, it’s easy for people to neglect the most boring – but probably the most consequential – part of the process: their finances. Unless you can pay for the whole car with cash, you’ll probably need to finance it with a car loan. A lot of people forget to do their homework for their car loans, and they can miss out on a lot of savings by making a few classic mistakes. If you want to save money financing your new car, here are five mistakes you should definitely be sure not to make while applying for and negotiating a car loan.
Not Taking Care of Your Credit Rating
Lenders will base their decisions for your loan almost entirely on your credit rating. Your interest rate and whether your application will be accepted at all hinge on it. Before you even start applying for car loans or really even shopping for a new car, you should order a copy of your credit report from Equifax, Experian and TransUnion – each will give you a slightly different score. Knowing your score will help you negotiate your rates.
Choosing Long-Term, Low Monthly Payment Loans
There’s no force quite as powerful as compound interest, and low monthly payment plans take advantage of it. The loan’s not paid off until you’ve knocked the principal – the amount of money you actually borrowed – down to zero. As long as you owe money on that loan, it will be collecting interest, which you’ll have to pay. The difference between a three-year and a five-year loan can add up to hundreds or even thousands of dollars.
Not Crunching the Numbers
While it’s fairly simple, a lot of people don’t walk up to the negotiating table having already figuring out how much they’re willing to spend up front or per month. You’ll have to make some uncomfortable sacrifices if you take out a loan with monthly rates that exceed what you can comfortably afford, and you’ll end up paying more than you needed to if you take a too-low monthly rate. In addition, knowing what you can comfortably afford will help you negotiate intelligently – you’ll almost certainly be able to work out a better payment plan than you would without knowing what your limits are.
Not Negotiating Your Interest Rate
Pretty much any price tag at a car dealership is negotiable (within reason, of course). Shaving off a percentage point or two off of your monthly interest rate can end up saving you thousands over the course of paying off your loan. Ideally, you want to minimize your annual percentage rate – the yearly interest rate – and maximize your monthly payments in order to cut down on your interest payments as much as possible.
Not Shopping for Options
If you have anything close to a decent credit rating, you’ll be able to shop around for financing. Credit unions, banks and other lenders will consider your application for a loan to pay for the car. The offers you get as for rates and maximum loan value will vary significantly from one lender to the next, so make sure you know your options. Car dealerships with easy financing like Valley Chevy are another reliable option for financing your car. Plus, you can do it all in one place that way!
Your Valley Chevy Dealers
There’s more than one way how to get a car loan, and which option works best for you depends completely on your personal credit and financial situation. Taking your first steps, though, isn’t that hard. You’ll want to have an idea of the new car you’d like, and how big of a loan you’ll need – you can to learn more and we’ll be glad to help you get a great deal on a great car.