What are some mistakes to avoid when getting a car loan in the US?
Moving to the U.S. can be difficult and overwhelming, but getting a car loan doesn’t have to be. Buying a car is an important and, sometimes, lengthy process. So there’s room for mistakes. However, with careful planning and research, you can know which mistakes to avoid when getting a car loan in the US.
The process of getting a car loan can become more complicated for expats. So it’s important to be aware of these common car loan mistakes. Most of these occur before your loan gets financed. During the research, application, and negotiation processes.
It’s important to remember that getting a car in the United States involves more than visiting a dealership and getting a good price for a car.
Here are some of the most common mistakes when getting a car loan and how to avoid them.
1. Going to a car dealership without getting pre-approved for a loan
Many people visit a car dealership first without securing a car loan. This can lead to consumers choosing lenders that are near the dealership or recommended by the dealer. These lenders may be convenient. But they are not necessarily the best fit for internationals in the U.S.
If you choose a lender and get pre-approved for a car loan beforehand, your final visit to the dealership can be quicker and smoother. You’ll be more likely to stay within your budget, as you have already been approved for a loan amount. Also, you will have an advantage when negotiating your car’s price.
If you explore lenders before visiting a car dealership, you’ll have researched the price of your car and your loan options more carefully. This gives you time to compare quotes and rates. Therefore you will be better informed when making the final decision.
How do I get pre-approved for a car loan?
There are many factors that lenders, banks and dealerships will look at before considering you for a loan. These include your credit score, current income level, and current debt level. What if you don’t have any credit history in the U.S. yet? No problem! Lendbuzz is a specialized lender that provides car loans for internationals without credit history in the US. You can get pre-qualified online in minutes!
2. Neglecting online lenders
Even though choosing the dealership’s financing options may look convenient because you are already there, it is important to remember that you have more to choose from! You can consider getting a car loan with a bank, credit union or an online lender. Neglecting online lenders is a mistake because you are greatly limiting your options. Online lenders will provide you with quotes faster than banks will and the shopping experience is more flexible. So you can save time and money.
3. Not knowing in advance what you can afford to pay
Ask yourself: How much can I put as a down payment? How much can I spend every month on the car? What will all the costs associated with getting a car loan be? Answer these questions honestly and avoid putting yourself in an uncomfortable position every month when payments are due. Facing your financial situation beforehand will keep you focused on a number. That way will not be distracted by the countless confusing offers the dealers may present you with.
4. Paying higher interest rates than necessary
It is suggested that you do some research around your area and make sure you get the best interest rate possible in the current market. With that information in hand, you can make a smart choice when selecting the interest rate more convenient for you. Dealerships tend to overcharge their customers regarding APR or yearly interest rate. You should explore all your options and look for the deal that best suits your needs and your financial situation. A higher interest rate may lead you to overpay for your car loan in the long run. As an international in the U.S., you may find that lenders are wary of lack of financial history in the States. You may get offered interest rates higher than 20%! This is too high and there are better car loan options for internationals.
5. Selecting a long-term for your car loan
The longer your financing term is, the more money you’ll end up paying in interest. If you select a shorter of 2 to 3 years, your monthly payments may appear too high in comparison to a longer 5 to 6 year term. However, at the end of the loan term, you will be saving money in APR. It is advised that, if you can afford the monthly payments that come with a short financing loan term, you should pick the shortest term possible. You could save thousands of dollars in interest when making this choice.
6. Paying more than the car is worth
After you’ve done your research, you should know how much you can afford to pay for: the vehicle itself plus the car loan and its fees and interest rate. You should have also decided the length of your financing term. Stick to those numbers! Don’t let your emotions betray you when you’re about to finalize your car purchase. Car dealers may try to convince you into choosing a deal that will benefit their business but hurt your wallet. Learn to say no to unnecessary offers. This brings us to…
7. Agreeing to expensive and unnecessary add-ons
As mentioned before, the biggest mistakes are made in the financial office of the dealership. Dealers are great at their job and they may try to make you sign warranties and other services. These may look tempting at first but will add up to the cost of the car loan and the interest. In most cases, these add-ons can be purchased for a lot cheaper in other financial and insurance institutions. As always, look at your choices and think twice before signing any document they present you with.
We hope you are now aware of the common mistakes to avoid when getting a car loan in the US. You’re now ready to move closer to purchasing your dream car.