It’s no secret that cars are expensive. With the average price of a new vehicle ranging around $32,086, it’s no wonder why Americans are opting for used, more affordable cars to help meet their transportation needs. Yet and still, it’s difficult for some households to round up $8,000 to $10,000+ to hand over for a new car.
This is why the idea of financing your vehicle has become so popular. It’s a quick way to get you the vehicle you need by putting an initial payment down and borrowing a loan in order to drive the vehicle off the lot, but it comes at a price. You will most likely have to pay back your loan amount plus interest and deal with any other stipulations.
Last year, I financed a car and it was a grueling process. Luckily, I’ve been diligent about paying off my loan and I only have about $2,200 left so I should be able to knock it out by the end of the year.
While I’m not a fan of debt or loans, I would only advise financing a vehicle if it is your last resort and if the action will actually help you improve your life. I made a couple of wise decisions when it came to financing my car like researching the best makes and models and choosing to go with a gently used car with low mileage instead of something brand new.
However, this post is about the mistakes I made when choosing to finance a car and how you can avoid them. Here are four mistakes I made when financing my car:
1. Financing a Car in the First Place
Like I said, I am not a fan of financing anything outside of a mortgage and I wouldn’t recommend that anyone finance a car as their first choice. If you need a new car, the best option is to save up to purchase a used car with cash. It may not be the most glamorous car but it will get you around and you won’t be in debt.
I realize though, that some who people truly need a vehicle may not have any money saved up to purchase one with cash. Other people live in rural towns where public transportation is limited and things are way to far apart to walk or ride a bike. This was my situation last year. I had very minimal savings and my current car at the time was literally falling apart on the road. I needed something reliable to get to and from work and my son’s daycare so I chose to finance in order to keep working so I could make money.
While I wouldn’t change my decision, throughout this year there have been times where I dreaded having to pay my car loan and watch hundreds of dollars go into my car instead of being able to save and invest the money instead. In a sense, my car has been an investment, because without it, I probably wouldn’t have been able to generate enough income to put about $10,000 toward my debt.
It’s just a tradeoff you have to accept. So before you finance, stop and ask yourself if you absolutely need to so you can avoid viewing the decision as a mistake later down the line.
2. Not Going Through a Credit Union
If you’ve come to the conclusion that you absolutely need to finance a vehicle, try to go through a credit union instead of a dealership. I went through a dealership and the process was so annoying and time consuming. I spent the entire day with my sales guy denying his offers for a newer and better car while they ran my credit score 20 different times to find the best lender.
After everything was all said and done, I left with my car along with a sky high interest rate and 10-15 new credit inquiries. My fiance on the other hand, had a much smoother experience with financing his car since he went through his credit union. They only ran his credit once and offered him an interest rate that was 10 percentage points lower than mine. Mind you, my credit is slightly better than his.
If you don’t want to miss out on a better opportunity to finance a vehicle along with a possibly lower interest rate, a credit union is usually the way to go because they are usually more personable, consider you more of a partner instead of a customer and truly look out for your best interest.
3. Not Being Adamant About Refinancing
When I noticed how high my interest rate was, I should have refinanced it after the first few months but I didn’t. This was a large mistake that probably costs me a great deal of money and I probably could’ve had my car paid off sooner.
Initially, I was just so motivated to throw everything I could toward the loan regardless of how much of the payment interest ate up. If you have a higher interest rate and you’ve been making payments on time for a while, stop and take the time to ask your lender if you can refinance for loan for a lower interest rate.
If they give you too much trouble, go to someone else who can help you. Refinancing will not only help lower your minimum monthly payment but it will allow more of your money to go toward the principal balance instead of interest.
4. Failing to Negotiate My Extended Warranty
When I was in the dealership trying to get my car, the experience was so new to me and I basically nodded my head to everything that I was being told. I didn’t interrupt or challenge what the financing agent was telling me and I asked minimal questions. The worst part is that I lacked any negotiation skills.
I later realized that my extended warranty was a worthless joke and it soon ran out as soon as I drove 30,000 miles in the car. Failing to negotiate the warranty was a huge mistake on my part because I could have tried to talk my dealer into offering me more coverage or possibly lowering my payment. Everyone deserves a proper warranty for their car whether it’s old or new so it’s important to press for this and negotiate a fair deal.
The one benefit of going to a car dealership is that if you can stand your ground and be firm, the sales rep only cares about you walking off the lot with keys to a new car in your hand. If they have to negotiate terms or lower your monthly payment by a little bit they will definitely try to work with you because for them it’s worth the sacrifice.
If you’ve financed a car or if you’re considering it, I hope you learn from my mistakes. Take your time, shop around and negotiate everything for the best outcome.
Have you ever made any of these mistakes? What other cautions could you add to the list?