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You should know your credit history and plan your budget before taking out an auto loan.
The longer the term length, the more likely you could end up owing more on you car than it’s worth.
Shopping around for terms at different lenders can help you get the best deal possible.
of Personal Finance Insider’s loan coverage here.
Buying a car, new or used, is a big decision – and you might be tempted to rush in without considering potential pitfalls that come with the purchase. Here are seven mistakes to avoid when you’re shopping for a car loan.
1. Not knowing your credit history
Not knowing your credit score before applying for a loan is a bit like flying blind into a storm. If you know your creditworthiness, you’ll get a general idea of which loan terms you qualify for and what to expect going into loan negotiations. If your score is low and you aren’t in a hurry to buy, you may decide to take time to improve your score to get a better interest rate.
To get your credit report from one of the three major credit bureaus, use annualcreditreport.com. You can get your report for free once per week through April 20, 2022. You won’t receive your credit score on this report, but you’ll get information about your credit and payment history. While reviewing your credit report, you can spot errors and figure out where you can improve.
You can obtain your score for free on your credit card statement or online account. You can also purchase it from a credit reporting agency.
2. Not calculating your budget
Before taking out a loan, you need to review your financial situation and make sure you can afford to pay back the debt. If you don’t plan out how you’ll incorporate monthly loan payments into your budget, you could end up falling behind on payments. This could lead you to rack up thousands of dollars in unpaid interest and significantly damage your credit score, which could impact your ability to get other loans in the future.
3. Going upside down on your auto loan
The value of your car generally decreases with time, so it’s possible to go upside down on your loan, meaning you owe more on your loan than your car is worth. This isn’t innately a bad thing, but it cause a problem depending on your circumstances.
For instance, if you want to get rid of your car before paying it off, you won’t just have to sell or trade it in – you’ll also have to pay the lender the difference between the value of the car and the loan amount. Or if you get in an accident that totals your car while you’re upside down on your loan, your insurance will only cover up to the car’s value. You’ll have to pay the difference out of pocket.
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Source:: Business Insider