When shopping for a car, many people often focus on their desired car rather than the loan that will finance it. However, good financing is the foundation of a good car deal, and mistakes could result in thousands of dollars debt in your pocket. While car buyers understand the importance of securing low-interest rates for their vehicle loans, there are other important aspects to take into account as well. Here are three key strategies as recommended by car-buying experts to avoid overpaying on your car loan:
Keep away from long loan terms
The typical car loan term has reached an unprecedented high of over sixty months compared to a few years ago. However, long terms expose borrowers to high risk of overpayment. Although the loan payment duration is longer, the amount of money paid during the entire duration will be more than the value of the secured car. In other words, car buyers will pay high interests over the duration of the loan. While car buyers can secure loans up to eighty months, car-buying experts recommend paying for a brand new car for not more than 60 months. Additionally, financing a used car loan should not exceed 36 months.
Shop for a better rate
You can't know whether you're getting a better deal on car loan financing if you hardly know your credit score in addition to what interest rate you are eligible for. Make applications to several car loans in order to compare their different offers and choose the most viable deal. Buyers with a good credit score can presuppose that they meet the criteria for the manufacturer's competitive terms. However, those with mid-tier credit ratings run the risk of having the dealer increase their interest rates. To avoid this, a good option is to apply for a loan with your credit union or bank prior to embarking on car shopping. Then allow the dealer to find you a competitive rate than what you already have.
Be keen on hidden fees
It's imperative that you understand the lending fees. Credit unions, online lenders, and banks can charge origination costs which are incorporated into the actual loan amount; hence, you can basically compare offers on the basis of payment as well as interest rate. Some lenders may occasionally charge prepayment costs. With dealers, a sale representative might quote a competitive selling price but then incorporate extra fees or expensive car accessories to increase their profit margins. Before signing the loan agreement, seek an explanation from the finance manager regarding any additional fees.