The right auto loan can help you own the car of your dreams, or obtain the vehicle that you need on a short timeframe. Unfortunately, the wrong auto loan can quickly turn into an expensive burden. Here are a few commonly made mistakes to watch out for when you are looking at your auto financing options.
First, it’s important to come up with a budget well before you set foot near a dealership. It’s easy to forget about other financial obligations or convince yourself that you will be able to handle a high monthly payment when you are looking at a car that is perfect, if a little pricey. Having a concrete number in hand is a good way to stay grounded and avoid buyer’s remorse.
You should also be very careful about the repayment terms that you commit to. General wisdom holds that it’s best to pay a higher monthly over a shorter term so that you pay less interest in the long run. However, this can be a burden in the case of unexpected expenses or life changes. If you’re expecting some instability over the next few years or if you don’t have a financial cushion, you should stick to a more conservative monthly payment, and pay extra whenever you are able to.
One final thing to check is whether there is a penalty for paying off your loan early. A few lenders will do this to recoup the profit made on interest that they would otherwise lose. If this is the case, then a long-term, low monthly payment loan will not make as much sense financially if you are probably capable of paying off the loan more quickly.
Basically, you always need to read the fine print when you are considering auto financing. Many people are reluctant to ask questions and sound uninformed, but it’s only fair that you have a clear understanding of what you are signing up for. Avoiding these common mistakes will help you save money as well as months or even years of stress.