Common Car Loan Mistakes

Here are fou car loan mistakes that can cost you money when purchasing a new car. Take your time for planning and preparation to avoid spending too much money on your next car loan.

Mistake #1: Low Credit Score

Having a credit score below 700 could cost you money on your next car loan. Poor credit scores make lenders to charge you with a higher interest rate on your loan. In addition, some of the lenders may require collateral from you. 


1. To avoid this mistake, obtain a copy of your credit report before purchasing your next car. Credit bureaus do make mistakes and you need to be aware of it in order to fix them as soon as possible. 

2. Check your credit card to see that no one has been using your credit without your permission; this is called identity theft and should be reported immediately. Have the credit bureaus remove these items from your credit report.

3. Make sure your report is accurate. Look for any loans that show up as unpaid when you have actually paid them off. 

4. Make sure none of your old credit cards show up as an open line of credit. If you do not use a credit card, contact the credit card company and ask them to close the account. This will help raise your credit score.


Mistake #2: High-Interest Rates

1. Look for the best possible interest rate. Higher the interest rate is, more money you will pay over the term of the car loan.

2. To avoid interest rate scammers, take your time to research on various private lenders.

3. You can try your current bank and see what interest rates they charge for a car loan. Having a good relationship with your bank will help you to get a lower interest rate on your next car loan.

4. Check online to compare different lending companies. Contact them and ask them what interest rate you would be charged for an auto loan. Evaluate all advantages and disadvantages. 


Mistake #3: No Down Payments

Having no down payment when purchasing a new vehicle could cost you money on your car loan. To bypass this mistake, put aside as much cash as you can for a down payment. This will lower the amount of future monthly payments. 

1. Use your budget wisely to take care of debts. Should you make some coffee at home every morning rather than stopping at Starbucks? Should you go to work with a prepared lunch rather than paying for pizzas and sandwiches at a cafeteria? 

2. Having a down payment as low as $1,000 could save you a lot of money over the term of the car loan.


Mistake #4: Long-Term Financing

Long-term financing could be another mistake that will cost you more money on your car loan.
In order to avoid the interest rate trap, finance the loan for a short period as possible. 

1. Make sure you can comfortably afford monthly payments with a 36 or 48-month term. 

2. Calculate your monthly payments. There are many online tools which can help you to plan your loan.