When you’re in the market for a new vehicle, where you decide to get your next auto loan can ultimately save or cost you money. It’s just as important as negotiating a great price on that new vehicle. Here are four auto loan mistakes we hope you won’t make.
1. Taking for granted that you’ll get the best auto loan deal right at the dealership
It’s a big mistake not to have auto loan financing in place before you enter a dealership. A dealership wants to make money, so you may be faced with a markup on the interest rate on an auto loan from the dealership. Moreover, dealerships will also bundle the transaction, which includes the selling price, any trade-in, terms, and fees. This may sound cost effective, but it’s actually not a good move if your objective is getting a good deal on your auto loan. Taking your chances and financing through the dealer is definitely a gamble. It’s always better to have your loan secured in advance. This will enable you to know exactly how much you can borrow and what your monthly payment will be beforehand. In short, auto loan shopping needs to come before you begin shopping for that new vehicle.
2. Not shopping around to compare several different lenders
Just as it’s a mistake to finance through the dealership, because it’s easier and you believe it’s a good deal, it’s also not a good idea to shop just one lender. You may actually be losing out on big savings if you take the first auto loan offer that you come upon. You may think that just because the monthly payment is slightly lower at that online lender, it equals a better deal. Not so fast. Will your finance charge be higher over the life of the loan, because of a longer term? If so, what seems like a savings simply because of a lower monthly payment, may actually be costing you more. A longer term will keep you paying on that loan for a much longer time; hence more interest. It’s always best to keep the term as short as you can afford and pay your auto loan off faster. Do you need a down payment for one lender compared to another? This can be very important to someone who doesn’t have any cash saved. Keep in mind that credit unions, such as Benchmark FCU, typically offer members lower rates on auto loans and fewer fees than big banks. In conclusion, here are the main things to compare when shopping for an auto loan: amount financed, loan term, total finance charge, APR (Annual Percentage Rate), monthly payment, fees, and penalties. There may be an application fee, additional required insurances, or possibly a prepayment penalty if you pay off the auto loan before the term ends, so be sure to do your homework and compare lenders.
3. Not getting pre-approved for an auto loan
If you’re going to take the time and energy to find the best auto loan deal, then be sure to get pre-approved for an auto loan. This means the lender has given you a written quote of the loan amount, up to a certain dollar amount; as well as a rate and pre-payment terms. Pre-approval can help you determine your spending limit before you start vehicle shopping. It will also help you when negotiating with the dealer because your financing is already in place.
4. Not considering your budget when borrowing to purchase a new vehicle
Believe it or not, many new auto buyers go into it blindly when it comes to knowing how much they can afford. What you qualify for and what you can actually afford may be two very different amounts. A lender or a car dealership may tell you what they think you can afford, but is that amount truly what your budget can handle? Did you even determine your monthly budget? If not, it’s where this whole process should start. In addition to considering the monthly payment, think about the cost of insurance, maintenance, and any other vehicle-related expenses. What will this new auto really cost you every month? Once you have a better understanding of the total cost, you’ll have a better idea of a monthly auto loan payment you can actually afford.
Shopping for an auto loan
Knowledge is a powerful thing when searching for an auto loan. We hope that highlighting these 4 common auto buying mistakes will help you to avoid making them when it’s time to begin shopping for your next auto loan. If you’re ready to start comparing lenders, click here to learn more about the benefits of an auto loan with Benchmark Federal Credit Union.