Bank finance articles and tips

Here are 4 car loan mistakes that can cost you money when going to purchase a new car. The good news is that with some planning and preparation, you can avoid spending too much money on your next car loan.

Low Credit Score

Having a credit score below 720 could cost you money on your next car loan. Poor credit scores leads to lenders charging you a higher interest rate on your car loan.

To avoid this mistake, obtain a copy of your credit report before purchasing your next car. The credit bureaus do make mistakes and you want to be aware of these mistakes that may be damaging your credit score.

Check to see that no one has been using your credit without your knowledge; this is called identity theft and should be reported immediately. Have the credit bureaus remove these items from your credit report.

Make sure there are no inaccuracies on your report. Look for any loans that are showing up as unpaid when you have actually paid it off and satisfied the loan? Maybe there are marks on the report stating you were more than 30 days past due when that simply is not true.

Make sure none of your old credit cards are showing up as an open line of credit. If you are not using a credit card, contact the credit card company and ask them to close the account. This will help raise your credit score.

High Interest Rate

Shop for the best possible interest rate because the higher the interest rate the more money you will pay over the term of the car loan.

To prevent having to pay a higher rate of interest, do your homework and research the best interest rate possible. There are many sources that lend money for a car loan.

You can try your current bank and see what interest rates they charge for a car loan. Because you have a working relationship with your bank, this can be a good source to find a lower interest rate for your next car loan.

Check online to compare other lending companies. Contact them and ask them to pre-determine what interest rate you would be charged for an auto loan.

A lower interest rate could save a lot of money over the term of your auto loan.

No Down Payment

Having no down payment when you go to purchase a new vehicle could cost you money on your car loan.

To bypass this mistake, do all that you can to put some cash aside for a down payment. This will lower the amount that you will be financing and charged interest on.

Develop a plan using your budget to tuck away a few extra dollars each month. Where can you cut your monthly expenses? Perhaps a couple days a week, you make your own coffee instead of stopping at Starbucks. Maybe bring your own lunch to work 2 of the 5 days in the week.

Having a down payment as low as $1,000 could save you a lot of money over the term of the car loan.

Long-Term Financing

Long-term financing could be another mistake that will cost you more money on your car loan.

To avoid this error, finance the loan for the shortest term possible. Buy a car where you can comfortably afford the monthly payment with a 36 or 48-month term. It is true your monthly payments may be slightly higher, for terms over this amount. But you will end up paying more in interest charges because of the longer term, and the rates are usually higher for this type of loan.

Be sure to calculate your monthly payments. There are many places online where you can do this.

Avoiding these 4 car loan mistakes can leave you feeling more confident, knowing you got the best possible deal on your car loan and saved big money in the process.

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By Mike Reitz
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