Cars are a big-ticket item that few consumers can pay for in full. Not everyone has $20,000 to $30,000 in spare cash to buy a brand new or even secondhand car. Most people opt for financing in order to distribute the financial burden of buying a car.
In fact, according to a report by the US PIRG, in 2018 alone, there were roughly 113 million active car loans in the country. At the moment, 85 percent of all new vehicles bought in the U.S. have been financed. If you plan on financing your car, here are five do’s and don’ts to financing a car.
Do #1: Think About Your Current Financial Situation
It’s easy to get caught up with all the excitement that comes with buying a car and completely forget about your finances. Knowing your financing options first before you start window shopping for cars online or at your local dealership is key to saving time and staying within your budget. Knowing your financing options gives you better insight into how much you spend overall and how much you can afford to pay per month.
Do #2: Explore All Your Financing Options
When financing a car, there is a common misconception that you can only get financing from the car dealership you choose to get the car from. That’s far from the truth, however. You can request financing eligibility from other brokers, including traditional banks and private lending firms. And if you have an existing car loan that you’re paying off, you can also auto loan refinance with Lantern or other similar platforms. According to Lantern by SoFi, “Essentially, auto loan refinancing is taking out a new loan to pay off your existing car loan. Depending on individual financial situations, applicants could qualify for a lower interest rate through refinancing—which could mean lower monthly payments and saving money in the long run.”
Do #3: Know Your Credit Standing
Your credit score is what lenders will look at when determining whether or not you qualify for a loan and, if so, what interest rate and terms you should get. You can check your credit score with one of three main credit agencies that handle this information, including Experian, Equifax, and TransUnion. Checking your score does not hurt your credit rating nor the ability to get approved for any financing offers. Moreover, it’s completely free of charge to request your score.
Don’t #1: Solely Focus on Monthly Payments
It’s a common mistake that most consumers make when financing a vehicle or any big-ticket item, such as a house. Monthly payments, however, aren’t the only key factor to consider when shopping for a car. Getting too fixated on how much you pay per month may blind you from the possibility of paying more for your car in the end.
Don’t #1: Sacrifice Quality For Price
Price is definitely something that will drive your decision as a buyer. That said, it should not be the only factor you use to make a final decision. The car’s safety features, fuel efficiency, and ability to traverse through different terrains have equal weight to its price.
Financing a car doesn’t have to be rocket science; use the aforementioned do’s and don’ts to properly finance the vehicle of your dreams without overpaying or putting your budget at risk.