Top 5 Car Loan Mistakes Costing Money
If you wish to save money while buying your next car, then you have to do more than simply strike a lucrative deal with the salesperson on the sticker price. An error while taking out even the best car loan in Australia could be pocket-pinching while erasing the savings bargained on the purchase price.
If you can avoid the following car loan mistakes, then only you can strike the best deal possible.
1. Allowing the Dealer to Determine Your Creditworthiness
Your creditworthiness finalizes your interest rate. Any borrower with a high credit score is eligible for a better car loan rate compared to one with a low score. Shaving only a single percentage point of interest from a $15,000 car loan over 60 months may save hundreds of dollars in interest paid throughout the tenure of the loan.
Learn about your credit score well in advance. Be in the driver’s seat while negotiating. You will know what rate o expect and whether the dealer intends to overcharge you or lie about what you are eligible for.
2. Negotiating the Monthly Payment Instead of the Purchase Price
Despite the importance of your car’s monthly price, you must know ahead of how much you can afford every month. Don’t show everything to the salesperson. Else, you will weaken your position for negotiating a lower purchase price.
Once offered, a monthly car loan amount informs the dealer how much you can spend. The salesperson could also try to keep other costs a secret, like a higher interest rate and add-ons. Moreover, they might pitch you on a longer repayment timeline to restrict that monthly payment within your budget but cost you more overall.
Avoid this by negotiating the price of each cost category separately, focussing on the total cost.
3. Financing the Cost of Add-ons
Dealership profits are majorly affected by add-on sales, particularly aftermarket products sold through the finance and insurance office. For an extended warranty or credit life insurance, these items can be pursued at a lower cost from sources outside the dealership.
Bundling up these add-ons into your financing will cost you more in the long run as well because you’ll be charged interest on them. Seek clarifications on every fee you find incomprehensible to avoid nonessential additions to your purchase price.
If you want an add-on, then pay for it out-of-pocket. It’ll even be better if you check whether it’s available outside the dealership for less. It has often been found that for aftermarket products, extended warranties and gap insurance, going to a third party is more economical.
4. Not Opting for the Right Term Length
Usually, car loan terms range from 24 to 84 months. A longer term is alluring usually because the monthly payment is lower. However, the longer you spend repaying your loan, the more interest you need to pay.
To conclude the best option for you, consider your priorities. If you are a driver who is keen to get behind the wheel of a new vehicle every few months, being trapped in a long-term loan might not suit you.
On the contrary, when you have a constrained budget, a longer term might be the only method you can afford your vehicle. A car finance calculator can help you understand your monthly payment to decide which option suits you.
5. Not Shopping Around
Dealership financing is simple. However, that makes it costlier. Dealers can mark up their rates by a few percentage points.
Shop around and get some quotes from banks or credit unions before visiting the dealership to get an idea of the interest rates available for your credit score and ensure that you avail yourself of the best deal.
Once you are preapproved for a loan, you can bargain with the dealership more assertively. They aren’t interested to beat the rate you already have. You need not depend on their financing to get the car you want.
Inference
If you have taken any commercial property loan in Australia before, make sure that you have repaid the loan in due course of time. Else, your credit scores may be affected. If you can refrain from the mistakes mentioned, above, then you’ll find that getting a car loan and repaying the same is not a challenging task at all.
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