5 Car Loan Mistakes That Could Cost You Money

by Rae Castillon

If you want to save money on your next car purchase, there are many things you should negotiate for other than just the car’s sticker price. However, one thing that is all too common is that many people seem to make a lot of mistakes, especially on the financing part, and especially more on their car loans.

Luckily for you, that’s what we’ll talk about today. In this article, we discuss some of the most common mistakes people make when getting car loans.

Not Shopping Around

If you want to purchase a car through a loan, there are several ways, like equity financing, salvage title loans, personal loans, and more, to consider. However, dealership financing is one of the most recommended ways of doing so. They are convenient and fast, but as a consumer, you should always get a “second opinion” first.

What we mean by second opinion are quotes that you can get from banks and alternative lenders. Doing so will give you an idea of how much interest you should pay for that is equivalent to a price. Once you get the gist of the loan pricing, you are well-equipped to negotiate for a car loan with dealership financing.

Negotiating on the Monthly Payment Instead of the Price

Another common mistake people make when getting a car loan is being fixated on the monthly payment instead of the car’s price tag. You should know how much you can pay every month, but you shouldn’t tell the dealer that. If you happen to tell the dealer your preferred monthly payment, then you’re already giving up your chances of negotiating for the price of the car itself.

Also, once you provide that information to the dealer, they can offer you a monthly car loan amount, giving them a chance to sneak in other hidden costs and fees like additional interest and add-ons. As much as you can, you should talk to them first about the price of the car, and once it settles down to a price that you are comfortable with, that’s when you negotiate the monthly payment.

Not Choosing the Right Term Length

Car loan terms usually go from 24 to 84 months. However, it might be tempting for you to go longer because of the lower payments you’ll get from them. One problem is that the longer you pay a loan, the more interest you’ll pay over time. In short, you’ll pay more for the same amount as a shorter-term length. Not only that, but lenders even increase the interest rate since you have a higher chance of defaulting on the loan due to the length.

That said, you need to be smart when choosing the right car loan length. To decide which option is best, you must consider your priorities properly. For example, a shorter length might be good for you if you’re the type who usually wants to be on a different wheel every few months. On the other hand, if you have a very limited budget, you might want a longer length since, as mentioned earlier, you’ll pay less each month.

Paying for Add-Ons

Some add-ons are tempting, like car insurance, extended warranty, etc. However, we all know they would cost you more on the loan. You should know now that these add-ons, especially car insurance, are usually much cheaper when you get them outside the dealership. People usually don’t know that these add-ons will cost them more since they’ll also be charged in your interest.

The worst part about them is that some dealerships sneak some of them into the final agreement, so you should always question every fee you see in the fine print before you put your signature on them. But if you want an add-on, you should pay for it straight out of your pocket. However, it’s still advisable for you to shop for them outside the dealership first.

Getting Upside-Down Equity

This is the term used to describe when you owe more on your car than it is worth. In this situation, lenders will usually allow people to roll over the negative equity into a new loan. You should never do this.

If you do, you will pay interest on both loans, adding more to your financial burden. In this situation, the best thing to do is to settle your negative equity as soon as possible and ignore all offers of rolling your negative equity into a new loan.

Final Words

The key to getting a car loan is preparedness. You should research first to know what to do and what not to do when you want to get a car loan. Also, you should keep the mistakes we discussed in mind so you do not do them in the future. Do this, and you’ll save more money than you expect on your car loan.

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