Unless you are able to pay cash for a vehicle, you will most likely need to finance your purchase. Automobile financing is available to help you purchase a used or new car, but each type of loan and deal will have its own specifications. Thankfully, proper understanding will help you secure a car loan that is smart and affordable. If you need a loan to purchase your new vehicle, here are a few mistakes you must avoid.
Having Bad Credit
Living with bad credit is difficult, especially if you need to buy a reliable vehicle. Unfortunately, securing a loan with bad credit can be costly. The lower your credit score, the higher your interest rate will be, meaning your car payment will be higher. Therefore, it is important to apply and secure a loan when your credit has improved.
If you have a low credit score, such as a score in the 500s, you may be able to qualify for a loan. Unfortunately, the interest rate will not be as attractive, meaning you will be paying a great deal of interest over the course of the loan. Scores at 700 or higher will give you a much better rate, which ensure a lower monthly payment.
If your credit is lower than desirable, consider paying off some of your outstanding debt. In addition, request credit limit increases on any credit cards you have. This will improve your debt-to-net ration dramatically, increasing your overall credit score.
Choosing the Wrong Deal
When buying a new vehicle, you may be offered a few different promotions. Many vehicle manufacturers and finance companies will offer promotional deals, such as a low-interest rate or a large rebate, at various times. If they qualify, customers can choose from one, not both, of these promotional deals. While surprising to learn, not all of the deals are smart choices when financing a vehicle.
A low-interest rate may seem like the better option. However, a rebate will reduce the total amount you will be financing, which lowers your monthly payment, as well. You should calculate which option, the lower rate or the lower amount financed, will save you the most money over the course of the loan.
Also, if you are trading a vehicle in towards the purchase of a new one, the rebate promotion may be best suited to you if you have negative equity in your trade.
By avoiding these common mistakes, you can finance your new vehicle in the most efficient, effective, and affordable manner.