How to Avoid the 4 Biggest Car Financing Mistakes

The endless forms (and their six-point-font fine print) can make car financing a daunting experience. It’s tempting to sign whatever is shoved in front of you, grab those keys, and start enjoying your purchase. Beware! Bad auto financing decisions can follow you around for years. Fortunately, many common mistakes can be avoided.

Going the Path of Least Resistance

It’s all too easy to accept whatever financing company the seller recommends. They’re likely getting kickbacks for setting up these loans, so it’s to their advantage to provide a loan service. It may not be the best option for you, however. Instead of waiting for the day of purchase, secure financing beforehand. Check with banks or credit unions you already have a relationship with, such as the one that’s providing your mortgage or your current auto loan.

Falling into the “Hidden Fees” Trap

The sticker price isn’t all you pay when you buy a car. You’ll also need to pay for the tags, sales tax, and any closing costs. A fee is also required to file the car’s title. Some dealerships may mark these up, so be sure to ask before you sign.

One particularly dangerous trap is the “document fee” typically tacked on to the loan. This fee covers the costs of filling out, processing, and filing paperwork associated with the purchase. The fee is a common way for sellers to inflate costs without your knowledge. Ask about these types of fees, and get an “out-the-door” price in writing before you commit.

Not Using Your Bargaining Power

Remember that prices aren’t set in stone. Dealerships price their vehicles to allow for some wiggle room when buyers want to haggle. If you see a great price in print or online, grab a screenshot or something else you can present in person. Give your local dealership a chance to match (or beat) that price. You’d be surprised at the flexibility they can offer.

If you’ve got your own financing set up already, don’t let on about it. Your salesperson will probably assume that you’ll go with their in-house loan company. The kickback they’ll expect out of the loan will factor into their numbers as they bargain with you. Once you get a price in writing, that’s when you’ll cheerfully announce that you already have a loan from your own source.

Refusing to Walk Away

You’re the customer. The dealership depends on your business. Never buy a car at the last minute, and always have a backup plan in mind. This allows you to do the most important thing — turn around and leave. Don’t be unreasonable in your expectations, but be sure to get a deal that you’ll be happy with in the years to come. The last thing you want is to feel regret every time you get behind the wheel of your shiny new car.

Buying a new car is already a stressful experience, and securing a loan only adds more pressure. By doing your homework in advance and going in with a confident mindset, you can get a loan that will satisfy both you and the dealership.

Image via Flickr by perzonseo

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