Rushing to sign the loan agreement.
When applying for a car loan, don’t be in a rush to sign the papers regardless of how good the deal appears. Take your time to evaluate everything. Consider your monthly financial status, monthly payments, and insurance premiums. If necessary, get a financial consultant to review everything keenly. If the loan won’t work in your favor, or might overstretch your finances or cost you more, walk away and go back to the drawing board to gather enough resources so that you can make a rational decision about the next loan to pick.
Agreeing on a longer-term.
A long-term loan may seem convenient as the monthly payments are generally lower, but it makes the loan more expensive in the long-run. It will help you reduce your monthly expenses, but it masks the overall increased cost of your car. Long-term, affordable low monthly payments are a technique applied by auto dealers to make you shift your attention away from the higher interest rates such loans carry. Because new cars may lose as much as 25% of their initial value annually, you may end up paying for a loan that is more expensive than the actual worth of the car. Auto dealers will make such deals appear enticing as they will make more profits over time. To save the most money, sign up for a loan with an affordable monthly payment and the shortest term possible.
The information you share with your dealer can and will be used against you. Oversharing is a mistake that a significant percentage of car buyers commit. It can reduce your chances of negotiating for a lower rate and give the dealer an upper-hand on the terms of the loan. You should be very careful when sharing information about your financial status with your dealer. The specifics of your monthly income should never be disclosed to your dealer at any time. Otherwise, the dealer may take control of the deal, and you might be forced to take whatever is offered to you. The dealers know how to manipulate such information and make you feel like they are doing you a favor.
Not negotiating for lower interest rates.
Most dealers don’t have fixed business terms on their rates and make different offers from borrower to borrower. If they notice that you have doubts about whether your credit score will help you secure a good offer or that you haven’t done your homework, they may overcharge you and mask the markup in the overall interest rate. When approaching an auto dealer, have confidence in your credit score and ask them about the annual percentage rate (APR). Avoid unfair discrimination by doing thorough research to equip yourself with the necessary information to negotiate the best rates possible given your credit score and down payment.
Rolling add-on services into loan financing.
Statistics from National Automobile Dealers indicated that more than 40% of the dealer’s income in 2015 came from add-on fees. Add-on policies may seem appealing, but they add up to the loan interest, increasing the total cost of the car. Subsequently, dealers offer add-on services more expensively compared to outside sources. Avoid being part of the statics by avoiding buying unnecessarily expensive add-on services from dealers just to burden yourself on loan servicing.