Shopping for your new car is (and rightly should be) a heck of a lot of fun. Researching all the different options and test driving each of the potential models, then deciding on the one that’s right for you and getting in the driver’s seat of your shiny ride, inhaling the unmistakable new car scent… There are few better feelings out there.
There are however a few common errors that are made when it comes to the financing side of things. If you’re in the market for a new car and want to make sure you don’t find yourself in the same boat (up the same creek without a paddle) as so many others before you, take note of the following 9 biggest mistakes people make with car loans.
1. Waiting until the end to sort out financing
When you’re on the prowl for a new car, there are so many factors to keep in mind that things can easily slip your mind. From doing all the research and reading up as much as possible about the models you’re interested in to shopping around for the best price, the negotiation process and the umpteen other things involved, the most important piece of the purchasing pie - financing - can end up being something of an afterthought.
Because it is without question the key to buying a new car, it’s imperative that you focus on financing first and foremost. You don’t want to fall in love with a vehicle only to discover that you’re unable to secure financing for it!
2. Forgetting to put a budget together
Whether regarding a car loan or anything else in life, living well above your means (aka champagne on a beer budget) can have severe consequences. All it takes is one unexpected problem which requires immediate monetary attention to throw everything off balance.
Avoid this by sitting down and putting a budget together. This will include all consistent monthly credits (e.g. salary) and debits (e.g. bills, existing loan repayments, etc.) and working out how much is left over. Doing this enables you to determine how much you can comfortably afford, which will then dictate which makes and models fall within your price bracket.
3. Being unaware of how healthy (or unhealthy) your credit score is
If you’re not across where your credit score sits, now is the best time to find out. It’s important to know your credit score before you apply for financing because a less favourable score can have an impact on your interest rate, and may well limit your choices of lenders and finance packages.
To find out your credit score, you can order a free credit report from a few places including Experian and Equifax, and in this report will be not just your credit score but information about existing loans, defaults and credit checks you’ve undertaken.
You can then review your report to determine if there are any errors. If so, be sure to take steps to have these corrected as this will improve your credit score. Also remember to pay all of your bills/loan repayments on time, and minimise how many credit checks are conducted against your name.
4. Not having pre-approval before going car shopping
Heading into dealerships without having pre-approved finance is like paddling into Teahupoo without knowing how to surf: you’re going to get smashed.
Making sure you’ve sorted out finance pre-approval gives you the upper hand from the moment you step foot into the car showroom; the salesperson can no longer utilise their financing ‘deals’ to further confuse things when it comes time to negotiate and you can ensure they’re putting the bottom line sale price of the vehicle down with zero smoke and mirrors.
5. Rushing into things
Buying a new car can be an incredibly emotional experience. Every sense - well, all except taste - is tantalised during the process, and it’s easy to sit back and let your emotions take the wheel (pun intended!).
Don’t let that happen. If you feel yourself becoming a bit foggy, step away from the situation and take some deep breaths to ground yourself again. You don’t want to make a decision as big as buying a car or choosing the right financing on a whim; take your time and make a cool and calculated decision based on facts, not feelings.
6. Not negotiating well with the dealership
While this may fall a little outside the ‘car loan’ area, it’s important to remember that the price you pay for your new car will indeed have an effect on your financing.
Negotiating can be quite a stressful/anxious experience for many people, and with good reason: chances are the salesperson has exponentially more experience at it. To help you on your car buying journey, if you’re planning on doing the negotiating yourself here are four key factors you must remember:
- Make sure you have finance pre-approved
- Be as informed as you can (research, research, research)
- Don’t let your emotions get the better of you
- Be 100% ready to walk away if they aren’t able to give you the price you want
If you’d prefer skipping the whole negotiating situation, our partners at carconnect can take care of it all for you. Just search for the make and model you’re after, pop in some details and they’ll put the tender out to their gigantic network of dealerships all over Australia who will put their best bids in. You can then choose whichever one you’re happiest with, sort out payment and either pick it up or have it delivered to your door!
7. Going with dealer finance
As stated earlier, having your finance pre-approved before you speak with a dealership means you already have the upper hand in terms of getting a great sale price.
Plus, when a dealership is offering their finance to you they’ll tout things like ‘0% interest’ and similar things that sound too good to be true. And as the old saying goes, if it sounds too good to be true it probably is. In this case, you might be in for a bit of a shock when you read the fine print and learn about all the hidden fees and charges involved, and/or how the interest rate jumps substantially after a certain period of time.
Avoid this all by taking heed of point number 1 in this article and sorting out your financing before you begin shopping.
8. Not fully understanding your chosen car finance package
If you want to avoid nasty surprises down the track it’s really important that you give the Ts and Cs of your chosen financing package a good read-through before signing anything.
For example, some lenders might not allow you to pay off your loan early and if you do, they’ll charge you a fee for doing so. Similarly, if you decide to switch lenders mid-term, it’s good to know you can do so with very little or even no penalty.
Don’t let this happen to you by giving your contract a thorough read and highlight anything you don’t understand so you can speak with the lender about it before you commit to it. If they can’t (or won’t) clear things up to your liking, walk away and find a lender who will.
9. Not using a car finance broker
There are so many mistakes that can be avoided simply by engaging with a reputable car finance broker. From being able to arrange pre-approval for you to taking the time to explain anything and everything about the finance package you’re interested in, they’re worth their weight in gold.
And because they’re not tied to any one specific bank or lender, they’re your gateway to literally hundreds of financing options from one single place.
If you’re interested in speaking with an expert car finance broker who has the knowledge and experience to match you with the best possible finance deal available, have a chat with the Stratton Finance team now on 1300 787 288.
Get the perfect car loan to suit you with Stratton Finance
WIth so many different car loan and financing options out there, it can be incredibly confusing to determine which one is the best fit for your needs and requirements. That’s where we come in.
At Stratton Finance, we’ve been helping Aussies like you find and secure the perfect car financing solutions for more than 20 years. Our huge amount of experience in this industry means we have the in-depth knowledge to match you with the right car loan package that works for you. And unlike the Big 4 banks who can only offer their own products, we can tap into our enormous network of lenders to get you the very best financing deal available.
So use our car finance calculator now and discover how minimal your monthly repayments could be. If you’re impressed (we know you will be) you can even apply online in less than 5 minutes! For any questions you may have or if you’d like some more information, please feel free to call us now on 1300 787 288 or send us an online enquiry.