5 Mistakes to Avoid When Financing a New Car

by Staff Writer

Be Prepared Before You Step Foot on a Car Dealership

If you need a vehicle but just don’t have the cash to pay for one right away, financing a new car is always an option.

With the right credit score and the right vehicle you can work out a deal with a car dealership or a bank to borrow cash to pay for the vehicle.

From there, you’ll make monthly payments until the car loans are paid off.

Keep an eye out for the following pitfalls as you consider financing a vehicle.

Stay Within Your Means

Getting too much car is one of the most common mistakes you can make. Once you take a look at everything available, your mind begins to wander.

You think about how great it would be to have one of these grand cars parked in your garage. Why get something small and practical when you can have a sporty car with all the bells and whistles?

After making the purchase, you realize that you may have spent a little more than you intended. And this problem becomes increasingly noticeable as the bill for your car loan shows up in the mail every month.

The answer is simple, don’t buy more car than you can afford. Set a budget before you begin looking, commit to that number, and make sure that you are not swayed by a slick salesman.

Crunch the Numbers

Your down payment can make a world of difference when it comes to the monthly payment. The higher the down payment, the less the monthly payment will be. (not to mention you’ll save thousands in interest throughout the life of your loan).

Before you sit down and negotiate a price for the car, take the time to do some research. Find out the size of the down payment needed to keep your monthly payments within your budget.

Don’t Forget About Car Insurance

Many people don’t realize that a vehicle must have full coverage insurance until the loan is repaid if the car is financed. This is a safety feature for the lender on the off chance that something happens to the car, be it theft or an accident.

Know what the insurance premium will be for your vehicle before you make the purchase. You have to be able to afford the car payment as well as the insurance.

Shop Around for the Best Interest Rate

When it comes to car loans, some customers don’t shop around for the best rates. The dealership will definitely provide you with an interest rate that seems appealing.

However, before you commit, be sure to check your local bank or credit union. You can even check with lenders online. This is a competitive market and people want your business. Don’t just settle for the first offer you receive.

Get all of the details before making your decision. Many times a financing option will look appealing on the outside.

However, once you seek out the details you may see that this just isn’t the right loan for you. Some loans will have no interest for the first year. This sounds great, but what is the interest rate after the year is up?

Don’t Get Swayed by the Perks

There are always some benefits offered if you finance through the manufacturer at the dealership. Banks and credit unions offer bonuses for customers that apply for a new car loan.

You may get free tickets to a sporting event or even a gift card. While these are tempting options, be sure that you are looking at the bottom line when making the decision.

Don’t forget to ask these questions: How much do I have to put down? How much will I have to pay each month? How long will I be making this payment?

What about you? Share some of your horror stories about car buying. Better yet, share some of your victories.

Photo By aldenjewell

{ 2 comments }

Mark Wilson November 9, 2011 at

You are right it is very important to ask what the interest rate is after the year is up. This post is really helpful. Looking forward for more post of yours.

Ryan Yates November 9, 2011 at

Thanks for the comment Mark. Financing a car isn’t the worst thing by far, but people definitely need to know how much they are actually spending.

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