One of the biggest mistakes people in the market for a new car make is not adding the cost of financing the car to its total price. The worst position you can put yourself in while buying a car is leaving your financing planning to the last minute when you’re sitting in your dealer’s office and signing the paperwork.
Instead, you should be sure to get a head start by planning ahead and giving yourself the time and headspace to compare different options and rates to find the best deal.
Here are some auto financing tips that will help you navigate your way through this cumbersome yet integral process:
Check Your Credit Score and Understand Its Significance
It is highly recommended that you check your credit score well before getting a loan. This will help you get a realistic picture of the kind of loan offers you may be eligible for and will also help you set a budget for your car search.
In case you have shaky credit, you will have time to fix it to whatever extent you can or you can start shopping around to make sure you make the most of an unfortunate situation.
Go for A Shorter Term
Loans with shorter terms are recommended despite their higher monthly premium because they help you avoid hefty interest payments.
The longer you take to pay back your loan amount, the more interest you’ll end up paying. There’s more! Sometimes, banks charge higher rates of interest on longer loans, increasing your total cost of credit by a lot!
As tempting as it might be to stretch the loan out and take your time in paying it back, experts say you should try your best to stick to a 5 year or 60-month term.
Try to Make a 20% Down Payment
Another way you can avoid paying more money than your car’s worth is by making a down payment in the very beginning. A rule of thumb is to make a 20% payment of your total loan amount. This also helps in bringing your monthly payments down.
Pay for Any Additional Charges with Cash
Most of the time, dealers try their best to get you to roll in charges like sales tax, registration fees, documentation fees, and more into your financing. This only increases the total loan amount and not the value of the car securing the loan.