Sometimes there seems to be a science to getting a car loan that won’t leave you in need of credit repair. One key is to be prepared! Here are six common pitfalls the American consumer falls into when taking out a car loan.
1. Not looking past the monthly payment
Reframe the question from “Can I scrounge up this amount every month?” to “Should I?” Think bigger-picture here. If you view buying a less-expensive car in terms of how much you could be saving every month, it starts to look a whole lot shinier! And doing this will help you stand strong in your priorities when negotiating the overall price tag.
2. Not considering other financing options
Patiently researching before you pull the trigger is always good practice, but especially when you’re about to commit to a car loan. Don’t assume the dealer has the best financing option; sometimes you are paying for convenience. Check out what banks or credit unions have to offer before you step on the lot.
3. Not knowing to negotiate the interest rate
Did you know that you can haggle over the interest rate as well as the price tag? Be willing to ask the lender or dealer for a lower interest rate; this is one way you can save money over the life of the auto loan.
4. Taking a longer-term loan to reduce monthly payments
You already know to think “bigger picture” when it comes to the monthly payment. Now think about how long you could be tied to this loan, as well as the interest (that you negotiated). The longer the term of the loan, the higher the interest expense. Even if it means you need to downgrade your car options, consider getting a loan with a shorter term — it could be worth it in terms of money saved and credit preserved.
5. Not paying enough up front
The preparation you put into taking out an auto loan should include determining, and saving for, your down payment. A higher down payment means a shorter-term loan, lower monthly payments, and a lower interest rate. Experts recommend paying 20 percent up front.
6. Not knowing one’s credit score
The last surprise you need on the lot is to discover that your credit score is too low for a good interest rate. You can be prepared against all of the other traps listed above, but if your credit score is lower, your interest rate will be higher. Make sure you check yourself out before they do!
Not happy with that credit score and concerned you’re going to wind up with a higher interest rate on top of a car loan? If you don’t know how to improve your credit, contact Ovation for a free consultation. Our credit repair programs are customizable and our customer service is always available!