Car Buyers' Blunders When Getting A Car Loan

American car buyers, especially new car buyers, have developed really bad car buying habits. Many do not notice it, but they are actually spending unnecessarily more than they should. To avoid wasting money, it is best to avoid these car buying blunders:

Blunder #1: Applying for a car loan without first checking your credit score

It is really easy to know your credit score by going online. Your credit score directly affects the loan terms available to you. Knowing your credit score gives you an idea of what car loan terms you could qualify for. Therefore, you would more or less be able to identify if you are being scammed with a higher interest rate than necessary.

In addition, knowing your credit score can actually help you make sound decisions. If your credit score is below 500, then it is best to pass up on applying for a car loan until you've fixed up all your finances. Your credit score gives you an idea of how good/bad your current financial state is. People unaware of their current financial state continue applying for loans, incurring higher interest rates in the process, and end up deeper in debt. If you can't afford a car, don't buy it! Instead, try to find ways to improve your credit score. The sooner you improve your financial state-and consequently your credit score-the lower the loan rates available to you would be, hence, the more affordable things become.

Of course, many Americans have bad, but bearable, credit ranging from 550-650. The wisest thing to do is to keep trying to improve your credit until it is considered good (680 and above). However, if you find it a hopeless task to do so, there are still reasonable bad credit car loans offered by certain lenders. The best way to find these offers would be by searching online.

Blunder #2: Failing to Research

The Internet is a great tool for finding valuable information on just about anything, and this includes car loans. It's therefore surprising why so many car buyers fail to research online before applying for a car loan.

There are many benefits of going online. For one, searching offers online allows you to have a sense of the going rate for car loan terms. It becomes easier to spot deals that are reasonable.

Moreover, car loan offers online are often direct offers from lenders competing to land deals with potential car buyers. This means that online offers usually have lower and more competitive interest rates compared to offers from dealers. Lower interest rates yield lower interest costs for the buyer.

Blunder #3: Going straight to the dealer

Directly financing a car loan with a lender (that can easily be done online) is convenient and more reasonable because of lower interest rates. Unless you can qualify for a 0% interest on a car loan, going to a dealer is really impractical.

In addition, dealers propose many add-ons in their offers. These extras (window tints, leather seats, alarm installations etc.) only bloat up the sales price of the car without necessarily adding value to the car. In fact, some of the add-ons increase the car's depreciation value which is never good for the borrower. Unfortunately, many car buyers are still persuaded to get the extras.

Blunder #4: Being obsessed with monthly paymentsAnother blunder includes car buyers focusing too much on the monthly payments. There are still some people who think that lower monthly payments mean less expense. On the contrary, lower monthly payments usually mean a longer loan term that yields a higher interest cost. Even if the monthly payment is low, by the end of the term, you would have still paid more overall.

Car buyers should learn how to look at the Annual Percentage Rate (APR) to compare loan offers. The APR reflects the borrower's total cost of credit expressed as an annual percentage of the amount of the credit. Basically, the lower the APR, the better it is for the car buyer.

Johanne Climaco specializes in providing valuable information to people keen on buying a car.