If you’re considering applying for a car loan, it’s important to avoid common mistakes that could lead to unfavourable terms, high-interest rates, or even loan denial.
1. Not knowing your credit score
Knowing your credit score is essential as financial institutions use it to assess your reliability to pay back the loan. Not knowing your credit history puts you at a disadvantage. Your credit score will give you a good idea of which loans you qualify for and put you in a better place to negotiate. To find out your credit score, request a report from a credit-reporting agency, such as Experian, Equifax, or Illion.
2. Not calculating your budget
Before applying for a car loan, it’s important to calculate your budget. This will help you determine how much you can afford to spend on a car and how much you can afford to pay back each month. Be sure to factor in all expenses, including insurance, fuel, and maintenance costs. You can use online calculators to help you determine your budget. It’s also important to consider the length of the loan term. A longer loan term may mean lower monthly payments, but it also means you’ll pay more in interest over the life of the loan.
3. Not shopping around
It’s important to shop around and compare different car loan options. This will help you find the best deal and avoid paying more than you need to. Consider looking at different lenders, including banks, credit unions, and online lenders. Be sure to compare interest rates, fees, and charges.
4. Making too many loan enquiries
Making too many loan enquiries can negatively impact your credit score. Try to limit your loan enquiries to a short period of time and avoid making too many enquiries at once.
5. Not going to a car finance broker
A car finance broker can help you find the best car loan options based on your individual needs and circumstances. They can also help you negotiate with lenders and ensure you get the best deal possible.
6. Rolling negative equity forward
Rolling negative equity forward means adding the amount you owe on your current car loan to your new car loan. This can lead to higher interest rates and longer loan terms, which can be costly in the long run. Instead, try to pay off your existing car loan before applying for a new one.
7. Not having pre-approval before car shopping
Having pre-approval before car shopping can help you negotiate a better deal and avoid being pressured into accepting unfavourable terms. Pre-approval also gives you a better idea of how much you can afford to spend on a car.
8. Paying too much attention to interest rates
While interest rates are important, they’re not the only factor to consider when applying for a car loan. Be sure to also consider other factors, such as loan terms, fees, and charges.
9. Sacrificing loan term for monthly payments
While it may be tempting to choose a shorter loan term to reduce monthly payments, this can lead to higher interest rates and more expensive repayments in the long run. Be sure to consider the overall cost of the loan, including interest rates and fees.
10. Not refinancing
Refinancing your car loan can help you save money by reducing your interest rate or extending your loan term. Be sure to consider refinancing options if you’re struggling to make repayments or if you’re paying more than you need to.
By avoiding these common mistakes, you can increase your chances of securing the best financing terms while keeping your financial health intact. Remember to always do your research, compare different options, and seek professional advice if you’re unsure about.