5 Mistakes to Avoid When Applying for a Car Loan
by Arina Smith Loans & Credit 02 October 2018
Getting a car today is so much easier, thanks to all the financing options offered by banks and other financial institutions.
However, don’t expect the path to getting your first car to be fully obstacle-free. You will still need to go through a few challenges first before you finally get the keys to your dream car.
To ensure you get a car loan that’s right for you, read through our top tips and ways to avoid common mistakes:
1. Forgetting to do research:
Before you start applying for a car loan, get as much information as you can about the car you want to buy. Make sure you are familiar with its key qualities and features including fuel economy, reliability, and price. Ensure you have a good idea of how often you will use the vehicle and what you will use it for.
Additionally, take the time to read up on the car loan process. Make sure you are well informed so that you can avoid the usual pitfalls that can cause you to get a bad deal. Familiarize yourself with the usual terminologies used in the lending process so that you can understand everything (or at least most) that the broker or financier is telling you.
2. Not knowing your credit score:
Car buyers who don’t know their credit score are at the mercy of dealers and lenders when establishing loan terms and interest rates. Keep in mind that if you are applying for a car loan, the higher your credit score is, the higher your chances are of getting a good deal and even lower interest rates.
As such, before reading about the different car loan offers or visiting a dealer, check your credit score first. You can do this easily by using an online credit score checking tool.
3. Skipping the car loan comparison shopping stage:
Even if you are in a rush to get a car and you feel comfortable with the first lender you talked to, don’t sign any paperwork yet until you have approached at least two more companies.
By talking to other providers, you will be able to get different loan offers. And with multiple offers, you will be able to choose the product that provides the best APR or annual percentage rate. This will help you avoid getting a car that you can’t afford.
In addition, don’t limit your loan options to the ones offered by banks, credit unions, or dealerships. There are many finance companies that you can deal with online. These companies will provide you with quotes faster than banks and are more flexible as well.
When you find the right financing company, you can also use the car loan calculator on their website. This tool will allow you to calculate the budget you need to have every month to repay your loan.
4. Failing to consider the overall purchase price of the vehicle:
When applying for a loan, avoid focusing on how much your monthly repayments are going to be.
Keep in mind that when taking out a loan, the longer your financing term is, the more money you will end up paying in interest. Although you will be paying a lower monthly fee for a long-term loan, you will incur higher interests. This, in turn, will increase the overall amount you are actually paying for the car.
To avoid paying a low APR, if you can afford the monthly payments that come with a short-term car loan term, choose this route instead. You can save thousands of dollars in interest payments (depending on the value of the car) when you select this option.
5. Signing all paperwork without reading the entire document:
Lastly, before signing the contract, make sure you read the whole document carefully. In case you don’t understand a condition or you’re not familiar with certain terms, ask the lender for clarification.
Take the time to ask the bank or financing company staff about other fees and extra charges that may not be stated in the contract. These additional costs may include substantial penalty charges for paying off your loan early.
By reading the contract thoroughly and understanding all the terms before signing it, you won’t have to be inconvenienced by unexpected and costly additional fees in the future.
When you make the effort to avoid these car loan application mistakes, you will find yourself driving your own car soon without running into any difficulties in paying for it.