Buying a car involves more than just picking your favourite model and driving off. You also need to sort out the payment part.
In Australia, about 2.4 million people have a car loan. The simplest way to get one is to go through the dealership’s office. While this is common, it’s not always the smart move. You might pay extra in interest, get stuck with add-ons you don’t need, and find yourself paying off your car for far too long.
This is just one of the many car loan mistakes new car buyers make. Keep reading to find out the top ten car loan blunders and how to dodge them.
1. Not Knowing Your Credit Score
Lenders use your credit score to figure out how trustworthy you are with money. The better your score, the lower the interest rates you’ll qualify for.
Knowing your score puts you in a stronger position to negotiate and save money. You can always use a credit reporting agency like Experian or Equifax to pull this information.
2. Not Calculating What You Can Afford
Before you talk to a lender, you need to get a clear picture of your finances. Look at any debts you already have and think about any big purchases you might be planning soon. All these can affect how much you can comfortably spend on a new car.
When you get a quote for a car loan, don’t just nod along—take the time to crunch the numbers using a car loan calculator. Make sure you can handle the monthly car payments, plus other costs like registration, stamp duty, and maintenance. It’s all about knowing what you can handle without stretching yourself too thin.
3. Not Shopping Around
Don’t go with the first car loan you come across. It’s important to look around before settling on a one. Comparing different options can help you get the best deal and keep you from overpaying.
Check out different banks, credit unions, and even online lenders. Compare their interest rates, fees, and any other charges. This way, you can ensure you’re getting a solid deal.
4. Focusing Only on the Monthly Payment
While you should see that the monthly car payment fits within your budget, fixating solely on this amount can lead to trouble. If you just look at the monthly cost, you could end up with a car loan that stretches on much longer than necessary. Crafty car dealers can sneak expensive extras into your financing package under the guise of achieving your desired monthly payment.
The smarter move? Focus on the car’s total price and the overall cost of the financing across the life of the loan. Make it a point to agree on the car price before diving into financing discussions.
5. Not Getting Your Car Loan Pre-Approved
One key step many overlook is getting pre-approved for a car loan. A pre-approval lets you know exactly how much you can borrow, clarifying your budget and preventing any temptation to overspend.
Keep in mind, though, that pre-approvals often come with a time limit; you might only have a few weeks to act. Secure this approval before you start shopping to streamline the buying process.
6. Not Putting a Down Payment
Consider putting down some cash when you buy your car. A down payment reduces the total amount you need to borrow, which in turn, lowers your monthly payments and the total interest you’ll pay over the life of the loan. Even a small down payment can make a big difference in how manageable your loan feels from month to month.
7. Choosing a Longer Loan Term
It’s tempting to go for a longer auto loan term, because spreading the cost over more years can significantly lower your monthly payments. However, this also means you’ll end up paying more interest overall. A good tip is to go for the shortest term you can comfortably manage to avoid spending a fortune on interest.
8. Ignoring Additional Costs
When budgeting for a new car, most people focus solely on the sticker price and the potential monthly loan payments. However, you must remember the additional expenses that come with car ownership.
Beyond the initial purchase price, you need to account for insurance premiums, registration fees, and the cost of fuel/toll. All these combined should give you a true sense of what you can afford. It’s better to plan for these costs upfront than be surprised later.
9. Rushing the Loan Process
Rushing through the auto loan process is a common pitfall that can lead to some seriously regrettable financial decisions. Many buyers get caught up in the excitement of purchasing a new vehicle and overlook critical aspects of their financing options.
Remember, the more informed you are, the better equipped you’ll be to negotiate terms that favour you, not just the lender. Patience and careful consideration can protect you from unexpected burdens and allow for a more enjoyable car-buying experience.
10. Financing Add-Ons
The only thing you want to finance in a car loan is the cost of the car. Adding extras like fees, costly add-ons, or taxes increases your loan-to-value ratio, which could potentially hike up your interest rate. More importantly, financing these extras means you’ll also be paying interest on them
Avoid These Car Loan Mistakes. Talk to the Advisors at My Money House
That’s our take on the ten car loan mistakes you must avoid. Your new car should be a blessing, not a burden. By being thorough and deliberate in your search, you can secure a car loan that fits your budget and financial goals.
Need more advice? Discuss your car loan options with the expert financial advisors at My Money House. We’ll listen to your needs and help you find a financing option that fits them perfectly. Get in touch today!
