Auto Loan Financing: Avoiding Common Loan Mistakes

Although car buying is a common everyday practice, many new and experienced car buyers fail to take the necessary steps that offer the most savings. Keep in mind that dealerships are looking to make a profit. Hence, they will not necessarily offer the best rates and rebate packages. For this matter, car buyers should do their homework and avoid common mistakes.

Mistake #1 – Failing to Know Credit Score

Never apply for a loan without first reviewing your credit report. Obviously, the more money spent on the vehicle, the higher the monthly payments. However, another factor also contributes to monthly payments – interest rate. Having bad credit warrants a higher percentage rate on the loan. If a higher rate is obtained, monthly payments will soar. On the other hand, if you have superb credit, the finance company may offer a low rate.

If looking for a low or reasonable monthly payment, obtain a copy of your credit report and score. If your credit score is low, re-think financing a new car. Instead, endeavor to increase score. With much effort and determination, it is possible to considerably increase credit score in as little as six months.

Mistake #2 – Avoid Overspending

Spur of the moment shopping is okay when buying cosmetics, clothing, shoes, etc. However, splurging on a new car is not wise. Before entering a car dealership, determine how much you can afford to spend for a new car. While browsing cars, avoid test driving cars priced outside your budget. Sometimes, car salesmen will employ tactics to get you excited about a more expensive car. Recognize this scheme, and avoid spending more than you can afford.

Mistake #3 – Failing to Compare Offers

Never accept the first finance package received. There are tons of dealer scams, which generally involve buyers spending more money. The only way to avoid such scams is to receive multiple finance quotes from different lenders. Understandably, many are hesitant to have their credit report pulled several times. To avoid this problem, use an auto loan broker. One application will produce several offers from reputable auto loan lenders.

Mistake #4 – Signing Loan Agreement without Reading

Never sign your name to a document before reading. If possible, have an auto loan or lease agreement reviewed by an attorney. Some sneaky dealerships will purposely include unfavorable terms in the agreement. Bad auto loan agreements may consist of unreasonably higher interest rates, balloon payments, upside down loans, etc