12 Common Mistakes to Avoid While Getting a Car Loan

Buying a car comes with a set of other expenses that are unavoidable. Insurance, fuel, maintenance, etc., keep adding to the ongoing expenses. Unlike some people who might buy a car with outright cash, most people prefer financing the vehicle. Because it’s the most affordable option. Canadians typically spend between $400 and $800 on the average car payment.

Taking a loan from a bank is not as simple as it seems. There are several factors that you need to consider and be aware of so that you don’t end up with a poor deal. 

And therefore, we’ve put together this blog to help you navigate through the process of getting a car loan.

 

Here are 12 common mistakes to avoid while getting a car loan.

 

1. Finalizing a car before understanding your financial situation

Start by thinking about your finances before falling in love with a car. Don't just focus on your car payment. Factor in other expenses like utilities, food, insurance, and rent/mortgage. Also, account for fuel, insurance, maintenance, and potential parking fees with car ownership. Plan for unexpected repairs if you’re buying a used car. Consider your budget, credit score, and financing options. Knowing your financial situation will help you determine if a car fits into your budget.

 

2. Visiting a dealership before getting pre-approved for a car loan 

Getting pre-approval for a loan gives you an advantage in negotiating financing terms and allows you to compare offers. It also prevents you from being pressured into accepting a dealership's financing offer.

 

Read: 5 Benefits of Getting Pre-Approval for a Car Loan

 

3. Focusing solely on the monthly payment

While it's important to have a payment that fits your budget, concentrating only on the monthly payment can lead to longer loan terms and costly extras added to the financing package. Consider the price of the car and the total cost of financing over the loan term.

 

4. Revealing your monthly budget to a salesperson

Avoid revealing your monthly budget to a salesperson. They may use this information to manipulate the numbers and push you into a higher-priced vehicle. Keep your budget information to yourself and focus on negotiating the price of the car separately from the financing.

 

5. Considering only local financial institutions

Don’t be limited to your local financial institutions. Consider online lenders, as they often offer competitive deals and streamlined loan processes. You can complete the loan paperwork online without needing to visit a physical location.

 

Read: 10 Common Car Loan Myths Explained

 

6. Not comparing multiple lenders

Shop around and compare offers from multiple lenders. Different lenders offer different interest rates, loan lengths, and terms. Visit various banks, finance companies, and credit unions to find the best financing deal for your needs.

 

7. Avoiding down payment

Making a down payment can help you secure a better financing deal. It lowers the loan-to-value ratio and reduces the risk for lenders. A larger down payment may also allow for a shorter loan term and lower interest rates.

 

Read: 5 Benefits of Making a Down Payment on Your Car Loan

 

8. Including your current loan in a new car loan

Refrain from including your current loan in a new car loan. This can result in higher interest rates that are not in your favor, along with a higher loan-to-value ratio and financial risks if something happens to the car.

 

9. Being unaware of your credit score

Know your credit score before applying for a car loan. It helps you understand what interest rate you qualify for and gives you negotiating power. Check your credit reports for errors and work to improve your score if needed.

 

10. Including add-ons as part of your loan

Finance only the cost of the car and avoid adding fees, add-ons, and taxes to the loan. Financing extras increases the loan-to-value ratio and can result in higher interest rates and unnecessary interest payments.

 

Read: All You Need To Know About Car Loans in Canada

 

11. Not reading the fine print

Take your time to review all the paperwork before signing. Ensure that the numbers align with the agreed deal, especially the car price, interest rate, and loan duration. Don't leave the dealership until the financing deal is approved by the lender.

 

12. Fear of walking away from a bad deal

You have the power to reject a bad deal. Trust your instincts and demand a better offer or simply leave. Prioritize your financial well-being and don't let embarrassment or invested time sway your decision.

In conclusion, obtaining a car loan requires careful consideration and avoidance of common mistakes. By following these guidelines and being diligent throughout the car loan process, you can make informed decisions and secure a financing deal that suits your needs and budget.