Buying a new car is an exciting prospect. There’s nothing quite like searching for a new vehicle, reading up on all the different features, and finding the vehicle that fits your needs and wants perfectly. Getting a car loan, on the other hand, can be an arduous process, and sometimes the excitement of actually getting the car can leave you susceptible to making a bad decision. You don’t want to end up looking at your car loan payment every month with a mixture of confusion and irritation, and that’s why we’re here to help you avoid the mistakes that will put you in that position. Here are a few common car loan mistakes people make and how to avoid them.
- Shopping With Your Heart, Not Your Head
Everyone has a certain car that they are particularly drawn to. Maybe there’s a type of car that you’ve been dreaming about getting ever since you first got your license. Unfortunately, the truth is that often times that car you’ve always dreamed of getting is very, very expensive.
While it might be appealing to take out a long term loan to finally nab that BMW, if you can’t really afford the car, you’re going to end up spending a lot more on interest for a longer-term loan than you would on a shorter loan for a car that’s closer to your price range. Sit down and figure out the type of loan that would be best for your finances, before you find yourself with a monthly payment that you regret.
- Financing WIth a Dealer, Instead of a Credit Union
When you buy a car, things can move quickly, especially when you’re actually in the dealership. Oftentimes, the dealer will try to get you to negotiate what’s called, “dealership financing”, which is a payment agreement where you pay the dealership directly instead of going and getting a bank loan. While this might seem appealing because of the ease of financing your car right there in the dealership, more often than not these agreements will have APY rates a few percentage points higher than what you would find at a conventional financial institution. Which leads right into our next common mistake:
- Searching Without Pre-Approval
When searching for a new car, it’s wise to get pre-approval on a loan first. Once you know the amount of money that you’ll actually have access to, your search will become much less difficult, and you won’t be in a position where you’re vulnerable to things like a dealership financing agreement that costs you more on interest in the long run.