For most Americans, having a car is a necessity. Whether you take concrete highways — which represent roughly 30% of all US interstate highways — or unpaved pathways to get to work or school, the majority of people agree that it’s better to rely on your own transportation than to be subject to publicly run options.
Still, obtaining a vehicle for yourself isn’t always easy — particularly if you have financial limitations. Certainly, buying a used vehicle can allow you to save money. Since nearly 40 million used cars exchange hands each year, including both dealership and private party sales, that’s a tip many Americans are turning to in order to keep costs low. After all, the important components — some of which may be made from processes like reaction injection molding — don’t change much from year to year; unless you have your heart set on a specific model, buying used is usually recommended for those on a budget.
Financing a vehicle involves obtaining a loan and gradually paying it off over time. This differs from leasing, which basically is like renting; you pay a set amount each month for the purpose of driving the car, but when your lease term is up, you won’t own the vehicle.
Financing is a popular way for motorists of all ages to own a car, as very few people can afford to buy a vehicle outright. However, the process can be notoriously complex. If you’re not careful, you could end up in a dire monetary situation. Before you talk to an auto dealer or a bank about securing vehicle financing, you’ll want to learn about the most prevalent mistakes car buyers make with their loans. That way, you’ll be able to avoid these missteps and make sound decisions.
Failing to Think About Financing First
If you’re eager to own a vehicle, you’ll probably think about payment last. But this may cause you to fall in love with a car that you can’t afford. Before you ever visit a dealership or peruse used car ads online, you’ll want to determine your budget. That means you’ll want to learn more about your credit score, explore financing options, and decide how much you can actually afford to spend — including how much you can pay per month for a loan — before taking a test drive. You might even want to think about being pre-approved for financing before going to the lot. And since 6 million people across the US are behind on their car payments by 90 days or more, failing to consider financing upfront could have major consequences down the line.
Not Considering the Loan Terms
It’s easy to focus on just one number — the monthly payment — when figuring out whether a car loan is acceptable. But that’s only part of the story. Sure, the monthly payment might seem feasible — but how long will you be making those payments? A car dealer might extend the terms of the loan to five years or more just to make the monthly payments look reasonable. In fact, a credit reporting firm recently found that one-third of auto loans for new vehicles taken during the first half of 2019 had loan terms in excess of six years. Not only will that mean you’re stuck paying for your vehicle for far longer than you should be, but you’ll also rack up more interest as time goes on. Essentially, you may end up paying for a car you can’t afford — and paying way more for it than you would have otherwise. Instead of zeroing in on the monthly payment, keep the total cost of the car in mind, as well as how much you’ll really be paying over the life of the loan.
Ignoring Your Credit Score
Whether you like it or not, your credit score has an impact on your vehicle financing. While having a not-so-great credit score might not completely discount your ability to secure financing, it can have a big impact on your terms. Some companies specialize in granting subprime loans to borrowers with poor credit histories; even though these may seem to be the only option for certain people, it’s best to steer clear if you can. Instead, work on improving your credit score before you ever apply for vehicle financing. You should ensure that your credit score actually reflects your credit history accurately, as any errors could end up being a big deal. Assuming your score is accurate, you’ll want to know exactly what it is. That way, a dealer won’t be able to deceive you about this number. If you know your credit score and are pre-approved for financing, you can use this to bargain with auto dealers.
For many of us, having our own car represents independence. But if you’re saddled with overly expensive vehicle financing, you won’t feel free for long. By avoiding the aforementioned mistakes when securing a loan, you can save money and drive a vehicle you love.
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I’d add that under the payment consideration that you should get an insurance quote as well and factor that into the monthly budget amount.
Good addition. Thanks, Patrick!
Great article, very helpful tips. It can be so hard to be able to afford your own car! I just wanted to share a saving tip for anyone looking for a deal on transportation. I was complaining about how much money Ive been spending on Ubers and a friend recommended saferides.org; its a non-profit and very affordable. You can book rides in advance and it’s great for large groups. Just in case anyone else is tired of draining their funds with ride-sharing apps!