25 Sep 5 common car loan mistakes to avoid
Most people have a positive experience when they take out a car loan. Sometimes, though, borrowers unwittingly put themselves in an uncomfortable position by making some of these mistakes:
1. Not understanding your finances. You should never borrow more than you can reasonably afford to repay. So before you apply for a loan, it’s important to get an understanding on your income, expenses and cash flow – both right now and what they’re likely to be in the future.
2. Not focusing on life-of-loan costs. Don’t judge the cost of a loan by a one-off interest payment, because this might be artificially low. Instead look at all the interest payments you’ll need to make over the life of the loan, and then add on fees.
3. Not checking your credit report. Your credit score might be lower than you realise, which might make it harder to qualify for a loan or force you to accept a higher interest rate. That’s why it’s a good idea to order a free copy of your credit report before you apply for a car loan.
4. Not getting a pre-approval. It’s risky to sign a purchase contract without arranging your finance, because you won’t know how much you can borrow. You can mitigate this risk by getting a car loan pre-approval before you start searching for a vehicle.
5. Not using a broker.If you get your finance from a bank, you’ll have only one option to choose from; from the dealer, you’ll have one or maybe a handful of options. But if you get your finance from a broker, you’ll be able to compare loans from a diverse range of lenders, which will significantly increase your chances of getting a better deal.
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