Yes, even during a pandemic people are buying new cars. Auto loans end, accidents happen, and leases come due. There are still people needing to get to work, run to the grocery store, and let’s not forget those needing to just get out of the house and take a drive. Considering the environment, many people buying cars right now are more than likely to be focused on getting beyond the high payment and into the best deal as possible. Even without pandemic that’d still be the goal, right? This is why we worked with our expert team to compile the top three mistakes to avoid when getting a new auto loan.
Taking Financing From The Dealership
Traditionally people tend to shop for cars before talking auto financing. Whether that’s looking for a car online through an auto search or heading to the dealership and test driving, shopping for the car more than likely happens before shopping for the right financing. Here’s the problem with that: you end up purchasing on emotion. How often have you done your research and ended up falling in love? Once you fall in love then the dealers talk about your budget for monthly payments, which isn’t always the best solution. When taking financing from a dealership in order to get the lowest monthly payment, they tend to extend out the term which leaves you with a longer period in having to pay back your loan, not to mention you end up paying much more in interest.
Recommendation: Never go with financing from the dealership without having your credit union or trusted AutoAdvisor look over it. At the very least, it’s like getting a second opinion from a doctor. It’s always beneficial to know your options and could potentially save you thousands.
Forgetting to Compare Auto Loan Rates
When shopping for auto loan rates don’t forget there’s more than one option other than who you regularly bank with. For example if you belong to a bank, you may want to consider looking into a credit union as they are typically known for having lower rates. It also can be beneficial to compare rates from a financial institution to a dealership. Sometimes dealerships run special pricing that can work in your favor that financial institutions may not such as 0% financing, however it’s important to be careful with this. Often times there’s stipulations to taking premium financing such as 0%, this can be in the form of waiving incentives such as rebates. Make sure to read the fine print and know what the whole offer covers.
The other thing to compare is financing terms. What we mean, is compare if having a shorter loan term is more economical than extending out terms. Sometimes the interest paid on a 48-month term compared to 72 is far greater, yet the monthly payment amount is a difference of less than $100 bucks per month. It may seem steep month to month, but can save you a lot in the end.
Getting the best deal may take some research, but if you have the ability to save hundreds, even thousands over the span of years that research may be worth it.
Recommendation: Be diligent with your research. See who can offer you the best deal and also take into consideration the whole picture. For us as a credit union we not only offer low rates, but we also ensure our members receive more when financing with us like an AutoAdvisor, GAP protection, hassle free payment options, etc.
Extending Terms Out To The Longest Amount
We just touched on this, extending out terms is one of the most frequent mistakes auto loan shoppers make because when we are presented with the lowest price per month option, naturally we gravitate towards it. The truth is, that’s not always the best thing to do. When you extend out terms on an auto loan, you essentially pay more interest on the entire life of the loan. This means you could be paying anywhere from hundreds, to even thousands more over the life of the loan. Compare options and do the math, this will help you to be able to see if it truly is a cost saver.
Recommendation: take the estimated monthly payment of an auto loan and compare it with the total interest that is to be paid over the entire life of the loan. Will the extra monthly payment be more or less than the total interest?
Getting into a new auto loan seems stressful, but it doesn’t have to be. When preparing to shop for new auto financing remember to avoid these three mistakes so you can get into something comfortable and get beyond any high monthly payments.