Planning to get a loan to buy a car? Be smart and avoid these common traps many car buyers fall into:
1. Failing to check your credit score
Your credit score directly affects the loan terms and rates available to you. Therefore, it is important to know your credit score to have an idea of what car loan offers you could qualify for. Knowing exactly what options are available to you may help you avoid getting duped into signing a loan term with a higher annual percentage rate (APR) than necessary.
2. Failing to Research Online
The Internet is the reason why our society is known as the information society. It would surely be a pity for anyone not to take advantage of the wealth of essential information made available through the Internet. And for car buyers, researching online does yield many benefits. Through certain online services, any car buyer can check different car loan offers and assess the going rate of these offers (which in turn equips the car buyer with certain facts useful for negotiating for a car loan deal).
In addition, there are online services that provide access to the history report of specific cars for sale by disclosing their VINs, or vehicle identification numbers. If truth be told, there are cars that get ‘damaged’ during transport from the factory. Some of these damaged cars still end up on the market, thanks to some devious businessmen. Knowing a car’s history helps you avoid purchasing an invalid product.
3. Negotiating a Car Loan Based on Monthly Payments
New car buyers mistakenly think that a lower monthly payment equals a good car loan deal. It is important to note that a lower monthly payment is usually achieved by having a longer loan term. Loans that are extended longer usually yield a higher interest cost at the end of the loan, which means that the borrower actually paid for a larger amount overall.
What a car buyer should consider is the total cost of credit. This can be determined by looking at the loan’s APR. The lower APR always benefits the borrower.
4. Going to a Dealer for a Car Loan
If you don’t have a credit score that allows you to qualify for a zero interest rate offer, going to a dealer is not the best idea. And it is definitely not a good idea if you have bad credit. This is because auto dealerships usually offer a higher interest rate in their financial programs compared to a direct financing setup with a lender.
In addition, dealership programs offer so many extra ‘services’ such as installing an alarm system, window tinting, leather seats, etc. These add-ons are appealing but they also bloat up a car’s sales price. Unfortunately, many are actually persuaded into buying the extras, overpricing the car in the process.