How to steer clear of potential pitfalls and get the most out of your auto loan
Posted on Monday, March 21, 2016 at 1:06:24 PM
It's a great time to buy a car. In February, car sales continued to climb at stunning rates despite fears of a slowing economy and analyst predictions that, at some point, sales must surely plateau following a record 17.5 million new vehicles sold in 2015. Cheap gas, attractive deals and low interest rates are all driving consumers to showrooms, confident that things can't get much better.
As you look to put your auto financing to use, make sure that you avoid the potential pitfalls that come with being a borrower. While a car loan can boost your credit rating and confirm your reputation as a responsible borrower, loan mistakes can pump the brakes on your future credit options. So before you sign your name on the dotted line, take a look at these common potholes:
1. Paying more than you meant to
The price of a car doesn't end with the figure on its windshield or the number quoted to you by a dealer. There's a bit more to it than that. A low initial price can occasionally be tied to high finance rates, Money Talks News reported, which end up with drivers paying way more than they originally intended to. That's why it's smart to shop around for different auto finance options, like those from Home Loan Investment Bank, before you start negotiating a price.
2. Forgetting about the interest
There's no doubt that an auto loan is one the of the best ways to build credit. But plenty of borrowers forget that loans come with interest. They take one look at the low monthly payments and forget that the total cost of the car has interest figured into it over time. Interest.com recommended making a 20 percent down payment, financing a car for four years, and being sure that the monthly costs - including interest - didn't equal more than 10 percent of your gross income. Sounds like a good strategy.
3. Finding yourself upside down on a loan
Buyers with a stable financial outlook are well-suited to long-term loans. They know they'll be able to make the payments on time for years to come. For everyone else, there's a chance that financial disruptions - losing a high salary to layoffs, for instance - could leave them upside down on their loan, in other words, with a car that's worth less than what is owed on the loan. It's best to hold onto your car. Don't sell it before reaching the break-even point in the loan.