For those looking to purchase a car, the amount of work and preparation required can be overwhelming. In fact, the entire process is so time-consuming that the average shopper needs about two weeks to complete a sale, from the time they start looking to the time they drive off the lot.
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Keeping this in mind, car dealers know they have shoppers right where they want them, which is why it is important to avoid these six rookie mistakes while shopping for a loan.
Trusting the Dealer
Many people believe the only people who will give them financing for a new or used car is the dealer who owns it. After all, they are the ones letting you drive away with it. But the reality is, there are many options.
Banks and credit unions are both good options to consider as alternatives to dealer financing. Finding out the interest rate, and how much a lender is willing to give, is a simple matter of making phone calls. Many times, the dealer won’t be the best option. By doing their homework, shoppers ensure they get the best rates and financing. The same principle applies when shopping for car insurance.
Focusing on Payments Over Price
Another mistake that is typical of an auto loan shopper is focusing on monthly payments more than the overall price of the car. Oftentimes, the first question dealers will ask is, “What do you want your monthlies to be?” This sets the buyer and the seller up immediately for a confusing numbers game.
Instead, buyers should find out for themselves before they get to the lot how much they can afford, strike a deal for a car in that price range, and then let the monthly payments fall into place.
Lying to Yourself About What You Can Afford
Once the homework has been done, the tricky part is analyzing the results. One of the biggest mistakes made is being unrealistic with what’s affordable. Although there may be exactly $400 left in a budget, that does not mean that $400 is the realistic payment one should seek out.
Car payments should not max a budget, as there are always surprises that require expendable cash. Coming to terms with being able to afford less than expected will prevent first-time buyers from becoming first-time victims of the repo-men.
Overextending the Length of the Loan
Sure, paying only $200 a month may sound like a good deal, but over 760 months, it adds up. Unlike a home (which ideally goes up in value over time), a car depreciates in value with every passing day.
While $200 per month may be a great deal for a car right now, it will more than likely be a terrible deal in five years when the car is worth 1/10th its original value. Auto loans should be paid off as soon as possible, or else you run the risk of paying more than the car is worth during the tail end of the loan.
Not Taking Advantage of a Trade-In
Many loan shoppers believe they can get a better deal if they sell their car privately and negotiate a new car separately. The reality is, in many cases, that just isn’t true. Although car dealers won’t give you top dollar for a used car when selling outright, they will give you all of (if not more than) its full value if it is being traded in for a new car.
This is simply because the dealers have far more room to fudge the numbers when dealing with two vehicles, as any hit taken from the price of a trade will be absorbed by the profit of the new sale.
Of all the mistakes rookie auto loan shoppers make, the biggest is not having the patience required to wait. Car buying is not something people do in a day, or even a week. Car shopping is a long and drawn out process, often taking weeks.
However, if rookie shoppers are having a hard time justifying their wait, they can take solace in this: dealers need customers more than customers need cars. With time, patience, and the ability to walk away, shoppers can get exactly what they want for the lowest price available. By the time you are ready to close the deal on a car, you should also have your auto insurance lined up.
Although the world of auto loans and car shopping is intimidating and terrifying, it is part of our existence. Being able to walk away and process information at your own pace is the greatest tool for those looking to buy a new car today. Although the process will always be difficult, it doesn’t have to be impossible. Even for rookies.