Beware Of These Auto Financing Traps

Many car shoppers think speaking to the car salesperson is the best way to negotiate a deal. However, it’s actually the dealership’s finance manager who has the final say. Many buyers will spend hours negotiating a $200 reduction in the price of the car, but then they’ll walk into the finance office and sign up for an overpriced extended warranty plan for $2,000 without batting an eyelid. That’s why it’s important to plan ahead and know what to expect if you want to avoid being taken for a ride at the dealership’s finance offer. In line with this, we’ve revealed three key auto financing mistakes below and explained how to avoid them.

Letting the Dealership Mark up The Rate of Interest

When reviewing your credit history, finance managers are likely to spot small problems, like a late payment from years ago, and use them to mark up your interest rate by as much as 2 to 3 percent, which will, in turn, cost you hundreds of dollars (or more) over the life of the loan. If you want to avoid this, make sure to get pre-approved for an auto loan from an online lender, your current bank, or a credit union. Then, use your loan offer to bargain a better deal with the dealership.

Extending the Loan Term

In order to make auto loans seem more affordable, dealers are known to offer 72-month and 84-month car loans. While loans with repayment periods this long will have a lower monthly payment, keep in mind that you’ll end up paying a lot more interest over the course of the loan term. And given that you are repaying less every month, there’s a good chance you’ll find yourself upside down on the car loan. The only time you should go with a long-term loan is if the dealership is offering you a very low-interest rate.

Rolling Closing Costs Into the Loan

At the time of closing the loan, you may have to pay a few extra fees and charges. The dealership will likely offer to add these expenses to the cost of your loan. But keep in mind that doing this will mean you having to pay interest on those expenses, as well. If possible, always try to pay off anything extra in cash.