For most people today, financing a car through an auto loan is the most viable way to purchase a car. However, wrong decisions and other mistakes made in the process can cost you more money. Read on and learn about the common mistakes American car shoppers make and how to avoid these.
Ask about the APR.
The Truth in Lending Act requires lenders to disclose the annual percentage rate or APR to their borrowers. Note that APR is not the same as the interest rate charged monthly. Fees and other costs related to the loan are included in the computation of the APR which expresses the total cost of the loan. Some lenders tend not to disclose the APR right away. As a responsible car shopper, you should always ask about the APR.
Take note also that dealers mark up auto loan rates. That means the interest rate they give you is most likely higher than the one given to them by the lender. Make sure you are not uninformed of these things regarding auto loan rates.
You don’t have to purchase dealership extras.
Most dealers offer add-ons like car insurance, warranty, car accessories, vehicle features and other services along with the financing you are already getting from them. If you want to save on dealership financing, opt out of these extras. They are optional and never compulsory. Although some of these extra items may be necessary for your car, you can always shop for cheaper options outside dealerships.
Check the warranties.
In line with the previous point, dealers often try to sell their own warranty that includes services and other gimmicks that make it more costly. Keep in mind that new cars come with warranty. This often suffices to cover the life of your car. But if you’re buying a used car, purchasing an extended warranty is recommended.
Draft a schedule for your car loan payments.
Did you know that many car buyers start off their car loan payments with a late payment? That surely damaged their credit standing! This happens because they did not know when their first payment is due. It is your responsibility to know and keep the amortization schedule of your car loan. Otherwise, you will keep on missing payments, incurring penalties and unnecessarily spending more on your car in effect.
Mind how long you repay the loan.
Your choice of loan term can make you spend more on your car. Remember that the longer the term, the more interest you pay. So if you are getting extension offers from your lender or dealer, think twice about it. Or better yet, mull over how long you will repay the loan before finally signing on the dotted line.
Make sure it’s a real auto loan.
Getting your car financed in a dealership is convenient. But you need to be careful of fraudulent dealership practices. For instance, the dealer asks you to sign some papers and says you can drive the car home afterwards. After a couple weeks or so, the dealer calls you and says your auto loan application has been disapproved. He asks you to drop by their office again to renegotiate the loan, which now carries a higher interest rate. Now, it’s either you return the car to them or take the more expensive loan.
Confirm penalties and other charges involved.
Some lenders would not discuss the hidden fees and penalties included in the deal. You have to ask about these and understand the terms before signing the contract. Penalties, like the prepayment penalty which is charged when the borrower pays off the loan sooner, can be really costly. Also, many hidden fees are unnecessary. Make sure you are paying only for what you need.
Pay attention to the fine print.
Never forget to read the fine print. This is where you can find important disclosures about the loan. A lot of car buyers paid off costly auto loans because they neglected to read the fine print. You cannot rely on the dealer to discuss everything with you. Take some time to read and understand what is written in the fine print before you seal the deal.