Did you know one of the rites of passage that every American goes through is buying a car? Having an automobile in your name is much more than a buying decision. Emotions and feelings are attached to your first vehicle. Additionally, an automobile has the potential to make or break your future financial stability. So, you must take every step with caution and due diligence.
Car Buying Tips: Do not become one of these Buyers
If you are unable to make timely payments or you end up in an upside-down car loan situation, it will affect your credit report. To make sure you do not fall down the rabbit hole of a bad credit score and crushing debt, you must make prudent decisions. Do not be like any of the following car buyers and avoid a terrible auto loan:
1. The Show Off
You may be excited about buying a car. An expensive automobile is a big step up the social ladder. However, you should not be the Show-Off car buyer because they end up with terrible auto loans. Focus on buying a car that is within your means. Choosing a car beyond your budget puts you at risk of repossession. There is nothing good about repossession because it will stay on your credit report for years.
Having the blemish of repossession or bankruptcy on your credit score will put you at a disadvantage. It will prevent you from getting lower interest rates for a long time. So, do not be a Show-Off. Learn what kind of car you require. Find out who all be driving your vehicle, and then shortlist a few models that match your budget. Be the Prudent Guy!
2. The Payments Guy
When you are only worried about the monthly payments on an auto loan, you stop looking at the big picture. The Payments Guy is only concerned about the lowest monthly payment amount. But a small payment amount does not translate to better savings.
Lenders often attract customers by offering smaller monthly payments over extended loan terms. It means the car buyers end up paying more money in the form of interest rates. Additionally, you also run the risk of an upside-down car loan situation. For example, the total loan amount after deducting the down payment is $20,000. You opt for a loan term of 60-months with an interest rate of 8%. The monthly payment amount will come to $405.53, and you will pay an interest amount of $4,331.67%. Now, if you request the lender for a lower amount of $350, your loan term will extend to 72-months, and you will have to pay a total interest of $5247.87.
Do not focus only on the monthly payment. Instead, discuss the loan term and APR as well. Find out if there is any pre-payment penalty involved or not.
3. The Lone Warrior
The Lone Warrior is a car buyer who sets out to buy a car on his/her own. The car buying process is a complex one. It can be overwhelming, especially when you are making it on your own. Emotions can come in the way of making prudent decisions. It always best to bring a friend when shopping for a car. It helps to have a third set of eyes so that he/she can be objective in your process and ensure that you make the right financial decision.
Often, the Lone Warrior believes in taking care of the financing process of their own. However, it is a fact that having a co-signer helps in getting quick auto loan approval and better interest rates. So, convince your colleague, friend, or family to become a co-signer for your auto loan and enjoy faster pre-approval.
4. The No-Savings Buyer
The auto financing industry is built on the truth that car buyers do not have sufficient money to fund the vehicle. However, it is a wrong move to opt to buy a car with zero savings. Even if you do not have money to make a down payment of 20%, it is wise to save up money for car-related emergencies such as fuel-change, repairs, and maintenance. It will ensure that you do not seek out exorbitant personal loans to take care of your car.