When buying a car, you may be tempted to take out taking out a car loan from the dealership, the bank, or even credit unions. This may seem like the easiest option, but there are many different factors to consider when deciding whether or not this will work in your favor. When taking out any kind of loan, it’s important to consider not only the interest rate but also your ability to repay it. To ensure that you’re making sound financial decisions every step of the way, avoid these five common mistakes when taking out a car loan.
1. Not checking your credit score
Before you apply for your new car, make sure you’re aware of what your credit score is. Your credit score can affect how much you pay in interest rates and whether or not you’ll be approved for financing.
2. Buying more cars than you can afford
The first mistake you want to avoid is buying more cars than you can afford. You should only borrow as much money as you need for the monthly payment and other expenses that go with owning the vehicle. For example, if your budget will only allow for $200 per month for your car payment, then don’t finance any more than that.
3. Interest rate too high
One of the most important factors in determining what your monthly payment will be is your interest rate. Interest rates can vary significantly from one person to another, so it’s important that you do some research before agreeing on an interest rate for your new car loan. One of the biggest mistakes people make is assuming that they’ll get the best deal by borrowing as much money as possible, so they wind up paying more in interest over time than necessary.
4. Not checking the insurance coverage
When you take out a car loan, it’s important to consider what the insurance coverage is like. You don’t want to finance your next vehicle and find that you’re not able to utilize it in light of the fact that the deductible is excessively high.
5. Delaying to get gap coverage
One of the most costly and damaging decisions you can make with your new vehicle is waiting too long before buying gap coverage. Gap coverage protects you if your vehicle is stolen or damaged in an accident that was not your fault. Without this protection, the lender will require you to pay the difference between what they are owed and what it costs for them to repair or replace the vehicle. Waiting too long could lead you to pay thousands of dollars more than necessary.
If you’re ready to buy a new car, the most important step is the first: getting a loan. Car dealerships will tell you what a great deal they can get you, and how easy the whole process is, but this is far from the truth. By avoiding these 5 common mistakes when taking out a car loan, you’ll be able to get the best deal possible while still being able to make all of your payments on time every single month.