14 Mistakes To Avoid When Getting Car Finance

Searching for car finance but don’t know where to start? Choosing the right car finance isn’t just about signing up for the first deal you come across. The ideal car loan needs to be well researched and a sensible option that isn’t going to get you into trouble! What should you look out for when applying for car finance, and perhaps more importantly, what should you avoid? Let's take a look!

1. Beware Of Hidden Fees

Make sure you are aware of any additional charges that may not be immediately obvious at first glance in the loan documents. These might include penalty payments, early repayment clauses, establishment and settlement fees. If the loan costs are buried in a lot of jargon and the financer hasn’t explained these to you, it might be better to walk away and find a more reputable car loan company.

2. Signing Up Without Flexibility

There is always a chance that you may have the ability to pay your loan off faster than expected by making lump sum payments or increasing your repayment level over time.  Make sure you have this flexibility built into the loan contract or at least the ability to renegotiate if your situation changes in the future.

3. Excessive Repayments

We all want to get our debt paid off as quickly as possible, but don’t fall into the trap of making your repayments too much for you to handle. Overreaching with the finances can lead to all sorts of problems such as missed payments, lack of funds for emergencies and defaulting on payments due. Over the longer term, this can even impact your credit rating, compromising future loan or credit card applications.

4. Low Interest Gimmicks

Low interest rates are a selling point for many of us – as this reduces the amount we will have to pay back. However, it is interesting to know that low interest rates don’t always represent the best deal. The reality is that low interest charged over a long period of time may end up costing around the same amount as higher interest over a shorter time. Crunch those numbers!

5. Not Paying Enough

While it is tempting to set your repayments as low as they can go, this approach will end up costing you money in the long run. Longer loan periods mean more interest accrued and in some instances, you may even end up paying twice over for the vehicle or find yourself wishing to sell it for a value that is less than the remaining loan amount.

6. Forgetting To Review Loan Details

Reviewing your car loan regularly is an important step for good financial management. While the loan is a formal contract, it can be renewed if it is not working for you, or if you wish to revisit some of the conditions to be more in line with your current situation (e.g. changes in your income, expenses, family situation, interest rates etc). Fine tuning your car finance will help you get the most from your loan over the longer term.

7. Focusing Solely On Monthly Repayments

While some of us may prefer to pay monthly instalments, it can be more prudent to increase the frequency of your payments as this makes the principal amount go down faster (interest is calculated on the principal). Generally speaking, most people will align the repayments with their pay days to ensure the money is there, but aiming for every two weeks might be a better option.

8. Forgetting To Consider The Total Cost Of The Loan

Starting off with low repayments can be tempting, but it often means a longer loan term and a higher amount of total interest paid, which all adds up! Instead of just focusing on the weekly or monthly repayment amounts, always look at the entire loan cost or the amount you will be paying for the vehicle in total – this may surprise you and also affect your finance decisions.

9. Not Shopping Around

Much like any product or service you are looking to buy, always shop around and get more than one price! Comparing various car finance quotes will give you a better idea of what is a fair deal and also what you are in for. Never settle for the first offer, especially if it's from the car dealership (as these tend to be on the pricier side). Compare rates from banks, car finance specialists and online lenders, you will often find there is quite a difference, and you could save a ton of money. Take your time don't be pressured into a deal you're not comfortable with.

10. Skipping Pre-Approval

It is a good idea to get pre-approval for your car finance before committing to your purchase. Pre-approval gives you a clear idea of how much you can spend and also strengthens your negotiating position. You do not want to end up in a position where you have found the perfect car but are unable to complete the purchase because you cannot secure the funds.

11. Underestimating The Value Of A Down Payment

While some people might not have much of a down payment, the reality is, the more you can save up for this, the better you will be over the longer term. This is because A larger down payment reduces the loan amount and therefore the amount of interest you have to pay.

12. Failing To Read The Fine Print

While it's unlikely you will understand all loan terms and conditions, having a read through the fine print is an important part of signing any contract. The most important things you want to look for are fees, any penalties, repayment frequency and interest rate. If you are unsure, run the contract past a lawyer or a friend or family member who has had experience with these types of contracts before. Always be wary of deals that seem too good to be true!

13. Underestimating The Total Cost Of Car Ownership

Have you seriously crunched the numbers on car ownership? Beyond the cost of loan repayments, people often forget to factor in insurance, regular maintenance, fresh tyres, annual WOFs and Vehicle Registration costs – plus the potential for breakdowns and repairs! Always ensure you have the finances to cover the cost of vehicle ownership when calculating affordability.

14. Forgetting To Factor In The Future

No one knows what the future will bring, but it does pay to give some thought to any potential changes in your financial situation moving forward in the near future. Will you still be able to make the repayments on your car loan if your situation changes? This might be a case of considering any future career goals, possible changes in your family situation or just fluctuations in general economic conditions.

Thinking about buying a car and need to arrange finance? Steering clear of these common pitfalls will set you on the right track so you can confidently navigate the car finance process and drive away with a deal that fits your budget and needs. Knowledge is power! Take your time, do your research, and don't be afraid to ask questions!

‍

‍