Avoiding High Costs on Automobile Loans

Tuesday, January 3, 2012

Automobile salespeople are trained to take any reasonable offer, and bartering for a better price is something many customers pride themselves on being able to do. However, making an error when obtaining the financing for the automobile purchase could negate any savings that were obtained through good negotiating.

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Never Borrow Based on Monthly Payment

Some lenders may try to finance with information about what the monthly payment will be. For some buyers, this can seem appealing since they may know exactly what they can afford to pay each month. However, this method often will mask a high interest rate and other hidden costs associated with the loan. Negotiating each portion separately for a total loan amount, then calculating the monthly payment is much more beneficial.

Coming Prepared with Credit Information

Many banks or financers will look up a customer’s credit score and determine the loan that way, since even one or two credit points can raise or lower an interest rate. However, smart shoppers will come equipped with a credit report, so that they can compare the information with that which the lender has found. Any discrepancies should be resolved prior to purchasing the car. Another mistake is in taking a cash bonus or other similar incentive, and settling for a higher interest rate. Over the life of the loan, the cost of the additional payments toward interest will be substantially higher than any discount that the lender can offer.

Say No to Add-On Fees

Automobile dealerships can make a high profit on add-ons, such as carpet protection, extended warranties, and paint sealant. Financial experts emphasize a “just say no” approach to any of these added costs, since there is a high percentage of customers who will never even use the warranties that they purchased. Finding a warranty outside of the dealership will usually result in more benefits and lower costs, so avoid purchasing these at the time of the car purchase.

Do Your Homework First

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Coming into the dealership with some research under your belt is also a smart way to get a good price on a car. Knowing the manufacturer’s suggested retail price on the desired car is a good bargaining technique, and knowing the meaning behind each number that adds up to the total retail price will provide less confusion and stress when shopping around.

Skipping a Payment

When individuals are in a difficult financial situation, they may be tempted to skip a payment on their auto loan. However, this could result in a high fee on the next payment or can be detrimental to credit. Borrowing some money with payday installment loans can be the answer when faced with such an emergency.

Being Prepared Means Lower Costs

Car financing can seem overwhelming, especially when faced with a mountain of paperwork. However, coming in with some information and preparation can often result in a much lower monthly payment and will help alleviate the stress of automobile purchasing.

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