For most people, the decision to buy a new car also comes with plans to borrow money. After all, this is a high ticket item. The majority of people don’t have the exact sum of cash sat around in their bank accounts. While it is possible to save up for a vehicle, most take out a car loan to pay for the purchase.
This is a common process, but it still requires careful thought. Not only do you need to be sure that the lender is trustworthy, the loan should be always appropriate for your circumstances. Taking out finance on a car is a little different to other types of lending, so it’s worth researching your options and asking plenty of questions.
This guide to some common mistakes will help you make the right decisions and get a loan which works for you.
Forgetting to Research
It’s true that lenders have a responsibility to inform. They must tell you as much as possible about any loan you request. However, the credit process starts with you. It’s your job to find out what kind of finance you’re eligible for and which car dealers are going to accept it.
You, of course, have the freedom to change your mind, but it’s a good idea to decide where you’re buying from before you apply for the credit. The application has a better chance of success if you can demonstrate a clear plan of action and intention.
Not Knowing Your Score
Knowing your credit score can help you avoid unpleasant surprises. For instance, if you have very bad credit, you may ineligible for many different types of loan. The only choice might be to apply for a special type of finance. The point is that you won’t know unless you check first.
Credit scores are important, but it isn’t impossible to get a loan with poor credit. In some cases, there are compromises, such as agreeing to pay higher premiums. Don’t be afraid to ask questions and have a lengthy chat with a loan provider you need some advice on this.
Calculate the Monthly Premium
This is a really important tip. Ideally, you should be working out how much you can afford based on monthly premiums, rather than the full price of the car. The problem is that it can be difficult to tell if a purchase is suitable from the big, fat forecourt price alone.
Many dealers know this and they focus on that number, instead of converting it into practical, month by month requirements. So, before you go shopping, calculate exactly what you can afford to pay each month. Then, use this figure to negotiate a better deal, if possible.
Borrowing for Too Long
Vehicle credit doesn’t work in the same way as personal loans. Cars depreciate extremely quickly. We all know this, but many people still agree to long term lending. If you cannot afford to pay for higher premiums, long term may be your only option.
However, it is always better to accept the higher monthly payments on a shorter plan. Otherwise, you end up paying a lot of interest on an item which isn’t really worth it after a few years. That being said, borrowing within your limits is always the sensible option.
Refusing to Walk Away
It’s easy to forget that, as the buyer, you have the power. You can walk away from negotiations if a deal doesn’t suit you. This is a high impact strategy and, more often than not, it leads to a better offer. You’ve got to remember that dealers start all discussions by overreaching.
Remember, this is how sales jobs work. They aim above their real target so that the figure seems generous when it is finally taken. Dealers really don’t like to let customers leave empty handed. If you threaten to walk, you’ll likely win yourself a better deal. You are in charge here.