Common Mistakes To Avoid When Applying For A Vehicle Loan
When shopping for an auto loan, it’s important to take your time and compare different options. Doing so will save you money and help you avoid costly mistakes when negotiating with a dealer.
One common mistake is focusing on the monthly payment alone. While a longer term may reduce your monthly payments, this approach will cost you in interest charges over the life of the car.
1. Not Doing Your Research
Revving engines, sleek designs and open roads are enough to make any car buyer excited. However, rushing into an auto loan without doing your research can lead to costly mistakes.
Avoiding the common loan mistakes will help you secure a vehicle loan with favorable terms, which saves money in the long run. For instance, zero down payment loans often impose large interest rates. It is also a bad idea to borrow for too long because it means you’ll be paying for your car for longer.
In addition, it’s essential to check your credit and pay off any outstanding debts before you apply for an auto loan. This will make the income verification process easier for lenders and ensure faster loan approval. Also, if possible, try to get a preapproved loan before you start shopping so you can compare vehicle financing options and have an idea of what to expect. This will also help you save time when negotiating with the dealer.
2. Not Getting Pre-Approved
There are many factors that go into determining whether or not you get preapproved for an auto loan. Lenders look at your credit score, employment history and other debt payments to determine if you will be able to afford the monthly payments of an auto loan. Even if you have excellent credit, there could be some errors on your credit report that can make it difficult to qualify for pre approval.
It’s important to shop around for vehicle loans and compare terms and interest rates. It can help you find a lender that will give you the best auto loan rate, which can save you money in the long run. Also, getting preapproved can help you stick to your budget when car shopping because it gives you a realistic idea of what you can afford. This will help you avoid a common mistake that involves buying an automobile that you cannot afford, which can lead to financial stress down the road.
3. Not Getting Your Down Payment Ready
Car buying and financing a vehicle is an important process that should be done with care. You should always shop around to get the best rate and make sure you know how much you can afford to repay each month. It is also a good idea to have a down payment ready to avoid the frustration of rejection when applying for a loan.
A large down payment can reduce your loan amount and lower your monthly payments, which is a benefit to you in the long run. It can also decrease your loan-to-value ratio which may help you qualify for a better interest rate.
It is a good idea to keep in mind that auto add-ons such as gap policies, window etching, and extended warranties or service contracts are not free and can increase your overall costs. Be sure to ask the dealer what the add-ons cost before you agree to purchase them. You should also ask your lender about manufacturer incentives, which can be great savings.
4. Not Having a Plan in Place
Many car buyers spend hours researching different vehicles online before ever setting foot on a dealership lot and taking one for a test drive. However, they often neglect to consider their financing options.
Whether you shop lenders or take advantage of dealership financing, your credit score will play an important role in how much you qualify to borrow and the annual percentage rate (APR) that you’ll pay. If your score is lower than you’d like it to be, taking steps to improve it before applying for an auto loan could save you hundreds over the life of your loan.
Remember, a vehicle purchase is considered a secured debt, meaning that the lender technically owns your car until you fully repay your loan. Failing to make your monthly payments can result in your car being repossessed and damage your credit scores. If you’re worried about your ability to make your car payment each month, consider working on improving your credit scores and reports first or getting a cosigner on your loan.