Avoid these 6 car loan mistakes
When searching for a new set of wheels, we often spend plenty of time deliberating what car to buy. Traipsing dealers by day, and trawling TradeMe by night. Debating what size will suit best, what colour matches your wardrobe, and what mod-cons are a must-have. Another factor of car shopping often falls further down the list – which car loan to choose. Of course we would say a car loan is important, but getting the right one could save you hundreds (or thousands), improve your credit rating, and help get you debt free faster. Here are the most common car loan mistakes to avoid:
Borrowing more than you can afford
Not borrowing more than you can afford to pay back might sound like a no-brainer, but it can (and does) happen. A responsible lender will always assess your affordability (which is why lenders often request bank statements), but ultimately it’s up to the borrower to decide how much they can really afford. Have a think about where you’ll be across the term of your loan. If your car loan is for 5 years, do you know of any expected costs in that time? Life changes like starting a business, having kids, a wedding, or moving house can all mean big changes to the budget.
Getting application happy
While shopping around means you can find the best deals, it’s important to remember every loan application can actually impact your credit score. Every loan application is listed as an inquiry on your credit file, and too many within a short period can suggest higher risk for a lender.
Making late repayments
Missed or late loan repayments doesn’t just mean you’ll have to catch up on payments, it also impacts your credit score. A poor credit score is likely to mean higher interest rates or loan declines for any future financing, with any lender. It’s worth keeping track of all your payments and being diligent.
Not understanding variable rates
We know there’s lots of financial jargon when sorting a car loan. It can be hard to wrap your head around terms like serviceability, security, consolidation and variable interest. Variable interest means changing interest rates, resulting in unpredictable loan costs. Car loans with The Lending People are always a fixed interest rate, meaning no nasty surprises.
Only focusing only on monthly payments
Monthly payments are of course important when considering a loan, but it’s always best to consider the overall cost of the loan. As well as regular payments, calculate the interest across the full loan term and any lender fees.
Not knowing your credit score
If you know you have bad credit, you’re not likely to have much luck with approval at mainstream lenders or banks. To avoid multiple loan applications and a negative impact on your credit rating, your best bet is to try a lender with flexible credit criteria (like The Lending People!)