Common car-buying mistakes
Finding a car you love is one thing; paying for it is another. Many car buyers fail to do their homework and end up regretting their car purchase when it’s too late. Here are the 5 biggest financial mistakes made when choosing a car:
- Forgetting about the down payment: Those attractive monthly payments the commercials advertise typically assume you’re making a sizable down payment of a few thousand dollars. Many people use the proceeds from the sale of their existing car as a down payment, but if you’re starting from scratch, you’ll need to save up. Without a down payment, expect a higher monthly payment or be prepared to get turned down for a loan all together. Most lending institutions require a down payment of at least 10 percent.
- Not crunching all the numbers: Even if you have a sizable down payment, there are still plenty of costs associated with buying a new car that you may not have prepared for, such as vehicle registration fees, destination fees, and taxes. When getting pre-approved for an auto loan, you’ll need to adjust the amount you’re applying for to accommodate these extras.
- Not cleaning up their credit report: If you wait until you’re at the lot to check your credit health, you may be too late. A few errors on your credit report is all it will take to drop your FICO score and bump you into a loan with a higher interest rate. However, removing erroneous information takes time, so buyers will need to start the clean-up process several months before they want to buy a new car.
- Not getting pre-approved: Dealerships also make money off the auto loans they sell and may try to get you into a higher interest rate loan to increase their profits. The higher the interest rate, the more money they make. By getting pre-approved, you will have leverage you can use to negotiate down the dealer’s proposed interest rate.
- Not shopping around: It’s not just car prices that you can shop around for. The automotive-loan market is also competitive, and it’s in your best interest to get quotes for from a range of lenders. The difference of a half-point in interest rates may not sound like much, but it will add up over time.