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What are some common mistakes people make with car loans?
I'm buying my first car and it will have to be financed. I don't want to regret getting a loan. What are some common mistakes I should avoid?
Jim Donaher · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
The most common and damaging mistake you can make with a car loan is taking out more money than you can reasonably afford to pay back. Lender guidelines and restrictions can reduce the risk of this, but there are those whose guidelines enable people to borrow more than they should, setting them up for trouble if there is ever an interruption in their income.
Another mistake, which can come about due to the first mistake, is not communicating with your lender when you start having trouble making payments. Although the lender won’t let you out of the loan, they may agree to an alternate arrangement based on the difficulties you are having and how long they might last. The lender may lower your payments and extend the loan. They also may advise you to sell your car and pay off what you can on the loan. This can result in an outstanding balance, which the lender may let you have as an unsecured loan, depending on the amount.
Other mistakes tend to occur during the car-buying process, including failing to consider online lenders or credit unions, not obtaining pre-approval for financing, not making a big enough down payment, or taking out a loan that’s too long. Though not necessarily fatal, any of these errors can cost you extra money.
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