7 Common Car Loan Mistakes and How to Avoid Them
While the pandemic has made public transport less desirable, the stats show that purchasing one’s own cars has substantially increased in recent times. Cars are no longer a luxury but a necessity. Nevertheless, purchasing a car is still a big deal for many people.
Most people would find it very difficult to pay the total amount upfront for a cash car purchase. But as having a spare few thousand dollars in the bank is unlikely, a car loan is often the best and only way to finance a large car purchase.
We suggest you avail of a car loan from any financial institution that offers flexibility and quickly approves your loan. But remember, there’s a flip side to it. Numerous people rush together to apply for loans without proper planning and verifying certain things.
To find the right financing option for your car, you must compare car loans. As many people are unaware of how car loans function, they can end up doing something wrong, thereby incurring additional expenses which could be avoided.
But before you finalize anything, we’d suggest you go through this post. Collated here are some common yet costly car loan mistakes you can avoid. Let’s dive in.
Car Loan Mistakes That You Need to Avoid
As car finances are readily available, it has become very convenient for people to purchase their dream car. But with the abundant options available in the market, it’s pretty challenging to find an appropriate loan option.
Failing to find their desirable financing option for cars, often people make extensive car loan mistakes. Some common car loan mistakes happen amongst both novice and experienced consumers. Here are inevitable mistakes that you must take note of to avoid:
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Borrowing More Money Beyond What You Can Afford
Many people get carried away and apply for bigger loans than they need or can afford. When you are thinking about a new car, you need to plan your budget according to what you can afford. Asking yourself specific questions will help determine how much money you can afford to borrow.
Using this strategy, you can also allocate reserve emergency and regular expenses. You must first determine the amount of money you can afford to repay every month. After this, you can choose and figure out your desirable car within the set budget.
Keeping in mind the extra finances of car insurance, fast tag, etc., you need to plan things accordingly. If you have a tighter budget, you can always consider purchasing a used second-hand car.
Choosing a Comparatively Longer Tenure for Loan Repayment
The tenure for car loans ranges from 1 to 7 years, widely varying from one financial institution to another. Unless your monthly income is significantly low, make sure you never avail yourself of a longer tenure for a car loan. Remember, the longer your tenure, the more amount you repay as interest.
If your loan repayment tenure is longer than usual, you might even pay more than your car’s worth. While the car value is deprecated each year, there’s no point in draining so much money. So plan accordingly and choose an affordable tenure for your loan repayment.
Not Paying Attention to Your Credit Score
Credit scores play an integral part in the loan crediting process. A high credit score makes you a stable borrower, while a low credit score makes you a high-risk consumer.
All leading institutions show great interest in your credit score. If your credit scores are bad, your loan approval is likely to be turned down.
Thus it would be best to keep a tab on your credit score. And if your credit scores are comparatively lower, the interest rates for your car loan will automatically shoot up.
Financing Unnecessary Add-Ons
Most car dealerships try to sell some attractive yet unnecessary add-ons. They’ll offer you many things from alloy wheels to premium music systems. Before you opt for any particular add-ons, we suggest you not get carried away.
Remember, the more additional your car has, the more expensive it will become. This, in turn, will make your loan amount and monthly payments shoot up.
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Not Conducting Thorough Research About Lenders
Car loans offered by numerous institutions have several features. So people are likely to get swayed and choose a lender without even conducting proper research.
You can use a comparison tool to learn about the features associated with each different lender. Also, don’t forget to get down to the fine print and look out for any hidden costs. Not comparing loans offered by various financial institutions is the worst decision ever. And this is the most common mistake almost every applicant ends up making. So you need to compare and select your desired deal.
Opting for the “No Down Payment Option”
Zero down payment is nothing but a marketing gimmick as it looks very tempting. Here, you might pay more on future monthly repayments, thereby resulting in higher interest outflow.
A no down payment option isn’t always the right choice for car loans. This will not help you to save any money in the long run.
Compare and Research to Find Your Perfect Car Loan
You must be familiar with the possible pitfalls of car loans. Nevertheless, following the proper steps will significantly help you enjoy your new wheels. So take note of the mistakes mentioned above and plan accordingly.