If you want to get a good deal on your next vehicle, you can’t just focus on getting a good price. If you aren’t paying cash, you have to worry about financing as well. The biggest mistakes are often made in front of the loan officer. Unfortunately, a lot of people are still completely clueless when it comes to calculating the real cost of a loan. In this article, we’re going to explore some of the most common mistakes people make when financing their vehicles.
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Negotiating Based on Monthly Payments
This is one of the biggest traps inexperienced buyers fall into. By disclosing how much you can afford per month, you’re giving the salesman vital information that will allow them to hide things like add-ons or a higher interest rate. So, while you already have an estimate for your payments and have a clear number in mind that you can afford, keep that secret at all costs, and negotiate each fee separately.
Letting the Dealer Dictate their Creditworthiness
Due to the rising interest rates, make sure that you know your credit score before you even step foot in the dealership. If you’re trying to find a car in Canada, all three major credit bureaus are obligated to give you a free copy of your credit report and score.
Most dealerships will offer different rates based on different credit scores, but if you don’t know what your credit score is, they can make up anything they want and overcharge you on interest rates.
You can even go the extra mile and apply for pre-approved financing. What that will do is give you a general view of how much you can borrow and what interest rate you can get. This works pretty much like a real-time credit check. You’ll now have more control of the negotiations and won’t be so easily swayed.
Not Negotiating your Interest Rate
For some reason, many people think that the interest rate on their loan is etched in stone. But, did you know that some car dealers will allow some salesmen to mark up their interest rates by as much as 2.5%? Depending on your down payment and credit score, some will be open to some haggling on the interest rate. So, don’t be afraid to try to shave a few points on that interest rate, most dealerships will be open to it. Just shaving one point off that interest rate could save you hundreds over the life of the loan.
Going Long Term
This is one of the worst mistakes you can make when contracting a loan on a vehicle. While you may be tempted by the seemingly much lower monthly price, a five-year deal would offer over a three-year one, think about the total interest you would have to pay over the course of the loan. 24 more months could add thousands to your car’s total cost on interest rate alone.
If you manage to steer away from these car financing mistakes, you’ll be able to avoid the predatory practices some dealerships practice.