There’s no denying that buying a car is an exciting time. But it can also be stressful and confusing! The most key thing to keep in mind is average car loan interest rate. While you’re busy budgeting for your next wheels, you’ve got to be sure not to make any of these common car loan mistakes.
Borrowing Too Much
The more you borrow, the higher your monthly payments will be. The more you borrow, the longer it will take to pay off and the more interest you’ll pay. The more money in your pocket that’s going toward repaying debt instead of investing or saving for retirement compounds over time—and could make a big difference in how much wealth you accumulate throughout your lifetime.
Taking Out the Loan Before You Buy the Car
Make sure you’re ready before taking out a loan. If possible, be prepared with enough cash or credit leftover so that if something goes wrong with your purchase (or even if everything goes right), there’s still enough left over for other essentials like rent and groceries.
Forgetting About Insurance Costs
It’s important to remember that insurance is a very significant cost when you own a car. Car insurance premiums vary widely depending on the type of cover you choose, and it can be difficult to predict what your monthly payment will be. It’s easy to forget about this expense when calculating monthly payments. When figuring out how much money you have available for your car payment, be sure to add in the cost of car insurance as well.
Failing to Negotiate
Negotiating is an important part of the car-buying process. Whether you’re buying from a dealer or a bank, it’s always worthwhile to discuss your interest rate, length of loan and down payment amount before signing any paperwork.
Committing to a Long-Term Loan
A longer loan term will likely come with a higher interest rate, which can add up to thousands of dollars more in financing costs over the life of your loan. If you’re not able to comfortably afford the monthly payments on your car loan, it’s best not to commit yourself so fully by committing to a long-term contract—you may regret it later.
According to Lantern by SoFi professionals, “Your loan term can also have a big impact on the interest rate you’ll be charged and how much you pay over the life of the loan”.
Getting a Cosigner Without Asking First
Don’t be afraid to ask for help. There are plenty of people out there who would be happy to lend you their name as your cosigner. When looking for a cosigner, make sure that he or she has a steady source of income and can afford the loan payment each month.
Not Shopping Around For Rates
A big mistake many people make is not shopping around for car loan rates. It’s frustrating when you find out later that there were better options available.
Most lenders will offer a rate based on your credit score and other factors, but each lender will have different rules about what qualifies as good or bad credit. And every lender has its own set of pricing tiers for each type of loan.
While car loans can be a great way to get the vehicle of your dreams, they are not without risk, to avoid such risks you can take the help of financing companies. If you’re planning on taking out one of these loans, then you need to make sure that you avoid making these common mistakes.
