Getting an auto loan can be your ticket to owning that dream car you've always wanted. But hold your horses.
Before securing that car, there’s a winding road ahead that you must navigate. Otherwise, you might get stuck in a financial traffic jam or with a vehicle you can’t afford.
But don’t let that deter you.
In this piece, we'll point out the common mistakes people make when applying for a car loan and raise your knowledge on how these mistakes can give you a financially bumpy ride. Best of all, we'll show you the shortcuts to a successful car loan experience.
So, buckle up, and let's set out on this adventure together!
Imagine you're at the local market and spot a packet of rice on a stall. It looks good, so you grab it without checking the prices at other stalls. But after you've paid, you walk further and find the same type of rice at a cheaper price.
You’ll feel conned. That's precisely how you’ll feel if you don’t compare lenders when looking for a car loan. As different stalls might offer the same rice at different prices, lenders offer various loan rates and terms.
For example, let's look at two lenders: Platinum Credit Limited and Ngao Credit Finance.
Platinum Credit Limited offers car loans of up to 75% of the total estimated cost, with a duration of 3 months to 3 years and an interest rate of 2.25% per month.
On the other hand, Ngao Credit Finance provides loans for up to 60% of the total estimated cost, with a similar loan duration of 3 months to 3 years but at an interest rate ranging from 3.5% per month.
Each of these lenders has its pros and cons, just like different stalls at the market. So, when comparing loans, pay attention to interest rates, loan amounts, fee structures, and other details to ensure you get the best deal.
The good news is that comparing lenders is as easy as asking a friend for a shopping tip. For instance, you can use Money254 as your shopping assistant to compare auto loans.
If you don’t stick to what you can afford, your car loan can cause endless financial stress due to overextending your finances.
So, before you rush to buy that car, take a minute to check your financial situation and create a budget so you don’t end up in the dreaded debt cycle.
Here's a simple plan to make sure you don't overspend:
Following these steps will ensure you secure a car that fits your lifestyle and is on the right financial track.
Imagine you decide to build a house without a proper foundation. You use just a few bricks and choose a contractor who promises the longest construction time and lower monthly payments.
The result? You end up with a shaky, expensive structure that takes forever to complete.
Similarly, when you ignore your car loan's down payment and loan term, you use a weak foundation and extend the repayment period. This can lead to higher overall costs and feeling stuck in a never-ending payment cycle.
That said, a large downpayment is not always the best option.
For instance, tying up a significant portion of your funds in a down payment may not be advisable if you need to maintain access to cash for emergencies or other investment opportunities.
Similarly, if you have alternative investment opportunities with higher returns than the auto loan's interest rate, it could make more financial sense to make a smaller down payment and invest the remaining funds elsewhere.
Furthermore, if you plan to use the car for income generation, such as operating a matatu, allocating your funds differently to maintain working capital for your business might be a better strategy
So, choose a reasonable loan term. Strive to strike the right balance between manageable monthly payments and minimizing interest costs.
The car buying process can be quite a marathon. It can wear you down. When you're ready to sign that final document, you’d probably only want to hit the road in your new ride.
But here's the thing. Before signing the final document, read the fine print carefully to avoid missing important details.
Ignorance is no defense, and you want to avoid those nasty surprises down the line.
Here's your checklist to ensure a smooth ride:
Consider having a legal professional, such as a lawyer, review the fine print of any loan agreement. Legal experts can help you decipher complex terms and conditions that may be challenging to understand.
Remember, your car loan isn't the only bill you must pay monthly. Besides, your expenses might change over the next 5 years.
For instance, you could get a kid, leading to additional expenses like school fees, medical bills, etc.
In addition, your car comes with its financial demands, including fuel, maintenance, parking fees, and insurance. As such, consider these future expenses when considering an auto loan.
Here's a roadmap to ensure you're financially prepared for the long road ahead:
When dealing with a car loan, it's easy to become fixated on the monthly payments. But financial planning is more like painting a masterpiece. You need to see the whole canvas.
While monitoring your monthly car loan payments is crucial, it's also essential to consider the broader financial landscape.
Consider your other financial goals, like saving for a house, investing, or creating an emergency fund. These long-term objectives are just as important as managing your monthly car expenses.
When you think about the long-term implications of your car loan, you'll be better prepared to make informed financial decisions, ensuring your vehicle doesn't become a financial burden.
Skipping loan preapproval when shopping for a car is like setting out on a road trip without a map. You might get lost along the way.
Here are more benefits of getting preapproved.
Preapproval ensures you're financially prepared for your car purchase journey, helping you avoid overextending your budget and potentially securing a better deal. So get preapproved first before setting out on your car financing journey.
Read Also: Money & Me: Buying My First Car.
In conclusion, whether you're a first-time car buyer or looking to upgrade, avoiding these common car loan pitfalls can steer you toward a successful and financially sound journey. So, take your time and make informed decisions to ensure your dream car doesn't become a financial roadblock.