Here are four new vehicle purchase tips you might find useful.
Understand Your Credit Score
You need to check your credit score before you even think of financing a car. This is because unlike credit cards or mortgages, you can get a car loan even if you have a bad credit history. The reason is that it is easy for banks to repossess the car in case you fail to repay your loan as agreed. However, when you realize that you can get a car with a bad credit report, you will get excited to the point where you forget to ask if there are lower rates available. Car dealers know this, and they usually take advantage to make some extra money.
They will advertise good interest rates but deliberately fail to indicate that the rates apply only to buyers with good credit reports. You will only realize you were duped when you have already taken the loan and struggling to repay. If you have a low credit score, you need to shop around and ensure you are getting the best rate.
Keep the Term Short
You need to keep the loan repayment period as short as possible. Shorter terms come with lower interest rates but higher monthly installments. This is what you need in order to avoid prolonged and stressful debts. Most dealers try to coerce their buyers to stretch their loan over a long period of time because they want to get more money. Your dealer will try to convince you with the lower payment associated with long-term loans and not by reducing the overall price of the car.
You must know that the longer you take to repay the loan, the more money you will part with in interests. Not to mention, many banks charge higher interests for long-term loans, which increases the cost of credit even further.
Make at Least a 20 Percent down Payment
While it is financially feasible to go for a short-term loan, you also need to focus on the down payment. Choosing to make a down payment can help you avoid a situation where you owe more on the loan than the total value of the car. This may seem so casual to many since some dealerships do not require people with good credit score to make any down payment.
Do not ignore down payment even if you have a good credit score. You never know what might happen in the future. For example, you may not be able to sell your car if the amount you owe exceeds the total value of the car. A higher amount of down payment will greatly reduce the amount you owe on the loan, making it possible for you to sell the car whenever you want.
If you are not able to get a good down payment, we recommend you work closely with your dealership so that the amount you owe does not exceed the value of the car. Your dealership will look into other alternative ways to reduce the initial principal amount of the loan.
Pay for Add-Ons with Cash
There are additional expenses such taxes, registration fees, documentation charges, extended warranty, and insurance that a new car attracts. Many car dealerships, are more than happy to include some of these expenses into the car loan, but ask each one for specific info in this regard. While this may seem convenient, you will end up paying a lot more than you could have paid using cash. You will be increasing the amount payable on the loan but not the value of the car. So make sure you carry some money with you to take care of other items your car might need.
Paying a car loan is not easy like many people think. A slight mistake in repayment and poor planning can plunge you into a debt you will never come out of. Consider the four tips discussed above to avoid going in the hole with a new vehicle purchase.
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Last update on 2020-03-19 / Affiliate links / Images from Amazon Product Advertising API
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