Are you considering getting a loan to finance the car of your dreams? If you currently have limited means to pay for a vehicle in full, getting a car loan may be the best move you can make to achieve more freedom with your monthly finances.
While it seems easy, deciding to get a car loan doesn’t always involve a smooth process. Make sure to avoid these six common mistakes when applying for auto financing so you can get the best results.
1. Not doing research in advance
It’s best to arm yourself with the right and relevant information when applying for a car loan as not knowing what to expect could spell disaster for your finances. Without enough knowledge, you are potentially putting yourself at risk of being manipulated into paying more than you should.
It’s also crucial that you know your credit score before you go to the lender. Get a copy of your complete credit report each year so that you won’t be at the mercy of the financier when it comes to loan terms and interest rates.
2. Revealing too much information
When you talk to a financier or a lender, you may end up sharing more details than necessary. Watch what you say and, as much as possible, only answer the questions directed to you – no more, no less.
If you want to negotiate to lower the overall price of the car, there’s no need to mention how much you can afford to pay every month. The lender doesn’t have to know the amount you can pay. If you give this away, the lender will already know how much room is available for extra fees and services to add to the loan.
3. Prolonging the duration of the loan
While it’s indeed tempting to go for lower monthly payments through a long-term loan, this can add thousands of dollars to your interest payments. You may be able to enjoy lower monthly payments to the point of affordability, but in the long run, you’ll end up paying more.
When it comes to loans, everything boils down to interest rates. Generally, the longer the term of the loan, the higher the interest rates will be. This means, the longer you pay for your car loan, the longer you have to pay for the interest rates, too.
If you can afford the monthly payments, stick with a short-term loan instead. Use a car loan EMI calculator to find out how much you can afford each month.
4. Getting add-ons that you won’t use
Don’t let a salesman “smooth talk” you into adding more features to your car than you actually require. If you know you won’t be using the add-ons offered, by all means, don’t get them. Why should you pay for things you won’t benefit from in the end?
During your search for a car, you should find the right vehicle that you can afford and that has everything you need. Always check for any hidden add-ons and terms, and clarify these with the agent. This will help you avoid getting surprised by unexpected expenses.
5. Not making an effort to negotiate a lower interest rate
To close a deal, lenders may be willing to haggle over the interest rate depending on your down payment as well as credit score. Don’t forget to ask about the APR (annual percentage rate) as some financial institutions are willing to overcharge customers who didn’t do their homework. If you know your credit score is good and you can afford monthly repayments, be practical and don’t hesitate to bargain for a lower interest rate.
6. Rushing to sign the contract
You may spend long hours with the lender to get a good deal. In your rush to finish the negotiations, you may be tempted to sign out quickly.
No matter how long it takes, make sure to review the fine print thoroughly. If the loan isn’t the right one for you, you can easily back out and look for a better one. Don’t hesitate to ask questions if there are terms in the contract that you’re unfamiliar with.
Leave no room for mistakes
Getting a car is a huge financial responsibility that you will need to take care of for a long time. Aside from paying for the vehicle, you also need to keep the car in good condition, which could burn a hole in your wallet. When shopping around for auto financing options, take some time to reflect on the six mistakes mentioned above to avoid suffering the consequences of unnecessary costs.
Deepak Kumar is a Co-Founder of SoulWallet, a neutral comparison portal for consumer financial services. With a team of “out of the box” thinkers and a deep understanding of the UAE consumer banking industry, the company helps customers make the best choices when shopping for financial products such as credit cards and loans.