Today, cars are not luxury items but a necessity considering the traffic in busy cities. When you apply for an auto loan, it is the most important investment after your home mortgage. There is no doubt about the same. Then, looking for the best car for your traveling needs is not as simple as it sounds. You need to have a fair amount of knowledge about cars, their make, and most essentially mileage.
You need to research the best vehicle options and choose the one that best suits your needs and budget. If you are looking for financing options, you need to tread with care. That is because there are numerous car loan providers out there. Then, not all of them are honest. We are not saying all of them are unscrupulous but there are few fly-the-night lenders. If you are not careful, you will end up choosing the wrong financing option.
Therefore, choosing a loan provider is very important. There is no doubt about the same. Cars are expensive and so are the mistakes when applying for auto loans. You opt for a dishonest financer or unaware of the terms and conditions of the loan, you end up in a big financial soup.
According to an article published on https://www.huffpost.com, if you are not aware of the cost of deferred payments, you will land in trouble. If you see a car loan ad screaming out, “No need to pay for six months,” it does not mean that you will ride the car, free for a period of six months. The interest will accrue over the months and you will need to pay the same after six months.
These traps are common and you must avoid the same at all cost. Read on to learn about some of the common car loan mistakes that you should avoid.
Not shopping around for auto loan options
You can apply for a vehicle loan in two ways. The first is approaching a bank or lending agency directly and the second option is applying through a dealership. Now, both of these options come with their pros and cons. If you are planning to take out an auto loan from a bank, choose a lender that has been in business for decades and a reputed bank for your financing needs. Inquire about the auto loan tenure, interest rates, and terms and conditions. These things matter when to start making the monthly payments for the car loan.
Then, the terms, conditions, and rates of interest vary from one lender to the other. Therefore, shop around for auto loans and look for the best rates. When you compare the loan options, you can choose the best rate and save a considerable amount of cash when it comes to the repayment of the loan.
Not checking your credit score and FOIR
Your credit score and FOIR are the two essential aspects when applying for an auto loan. These calculations help the lenders figure out the creditworthiness of the borrowers. When it comes to your credit rating, it is a score determined by the credit bureaus to understand your past payment history. The lenders try to find out whether you have the habit of making payments regularly and on time. Additionally, if you want to learn more about loans, credit scores, and car financing, you can visit websites like NationaldebtRelief.com.
The next calculation is FOIR or fixed obligation to income ratio. FOIR helps to determine your current financial obligations in addition to your auto loan. If the lender finds out that your total payables are over 50 percent of your net monthly paycheck, the bank or lender may not approve your auto loan application.
Therefore, check your credit score and FOIR before applying for a car loan. If you do not do so, your loan will face rejection.
Not making a down payment for an auto loan
Did you know that making a down payment helps in reducing your total auto loan cost? The ads screaming out zero down payments may seem tempting for a car buyer but there is another side to this story. These are nothing but marketing gimmicks. Even if there is a zero down payment, your total cost will be more. When you agree to no down payment, you cannot save on your car loan. There is no doubt about the same. On the contrary, you need to shell out more money when it comes to your total auto loan amount.
The mantra of most of the lending agencies is paying less now, more in the future. Therefore, do not fall prey to such marketing gimmicks. Avoid zero down payment options at all cost if you want to avoid paying more in the months to come, especially during the repayment period. Always pay as much as a down payment as you can afford to reduce the total cost of the loan.
Choosing a long loan tenure
Many auto loan providers will insist you to opt for a longer tenure to repay the borrowed amount. It may seem an attractive offer because you pay less every month. Then, is it? When you choose a longer loan term, you end up paying significantly more than a shorter loan term. When you keep the term long, your total loan cost will increase. Secondly, a car depreciates down the years. When you end paying your installments for the loan, your vehicle depreciates to a considerable extent. This way, you stand to lose because you pay more than the actual cost of the vehicle.
Paying for car add-ons
Any car comes with many add-ons like body cover, parking sensors, multimedia system, seat cover, and many more. All these add-ons will make your car ride comfortable and enjoyable. When you total up the add-on costs, it comes to a big amount.
There are lenders who offer to finance for the add-ons, as well. It increases the total cost of the loan. If you opt for it, it is not a wise decision to make. You can buy the add-ons at a reduced price from the market. Paying interest for car accessories is not a good idea.
Conclusion
Now that you know what mistakes to avoid when applying for a car loan, you can make an informed decision to invest in a new vehicle.