Car Loan Mistakes That Will Cost You
For many people, purchasing a car is an emotional decision, while smart financial decision-making takes a back seat to instant gratification. With dealerships eager to sell, nearly any car on the lot can be yours under the right loan terms. Unfortunately, this leads to millions of poor financing decisions each year, costing consumers thousands. Read on to learn how to avoid the most common mistakes.
Beware Buying New
Brand new models certainly offer the most bells and whistles, but they also offer the most risk of depreciation. The moment a new car leaves the lot, it loses approximately 15 percent of its value. If you’ve financed the purchase, this means you are immediately upside-down on the loan, owing the bank more than the vehicle is worth.
Consider More Than That Low Monthly Payment
It’s easy to get stars in your eyes when a dealer gives you the good news that your dream car could come at a fairly low monthly payment. However, it’s important to consider the overall cost of any new or pre-owned car. Sure, the monthly payment may be feasible, but how many months will you pay? The longer the loan term, the more interest you’ll owe, leading to a greater total cost over time.
Know Your Creditworthiness
The unfortunate reality is that many buyers rely on the car dealership to provide their credit score and resulting interest rate options. Rather than trusting someone whose goal is to make a sale, it’s smart to know your credit score ahead of time. You can get your credit report for free once per year from the three credit reporting agencies, Equifax, Experian and TransUnion. Walking into the dealership educated about your own creditworthiness means you’ll know whether you’re getting the best interest rate possible.
Heeding the above advice and educating yourself about the car-buying process could save you thousands of dollars over the life of your next auto loan.