The 7 Most Common Car Finance Mistakes
Purchasing a new car can be quite an exhausting process – between finding the right car and negotiating a fair price with the dealership, the last thing we want to think about is car finance
The good news is, we’re going to make the process easier for you, as we’ve compiled the seven most common car finance mistakes people make when financing a vehicle. Keep the following seven things in mind and you’ll be behind the wheel of your new car in no time:
1. Not understanding balloon payments is a common mistake most people make. Also known as a residual payment, a balloon payment is a lump sum paid at the end of the loan term . This final lump payment can often catch people by surprise, and if you aren’t prepared for it, it can put you in severe financial straits. Luckily you do have options:
- a. Pay the lump sum as initially agreed.
- b. Trade in your car and upgrade to a newer model, re-contracting in the process.
- c. Refinance the balloon payment and pay it off over a new loan.
2. The infamous 0% or 1% finance trap is easy to fall into if you aren’t prepared. Although a dealership may offer this low interest rate, they will certainly make up their money elsewhere; whether it be through unnecessary accessories, unfavourable loan terms or high repayments. If a deal seems too good to be true, that’s generally because it is.
3. Rushing into a purchase can often result in a severe case of buyer’s remorse. When you go into a dealership and take the car home on the same day, chances are you haven’t got the best deal on the car of the car loan.. You should always take a step back to evaluate the situation, educate yourself and consult with a professional.
4. Believing what you are told by the business manager at the dealership can result in misinformation and a potentially unfair purchase. Unless you seek the right advice from a car finance broker, the business manager at the dealership will be your only source of information regarding the finance industry and what your borrowing power is. A car finance broker will act as your advocate and find you the best deal available to you on the market.
5. Not having the correct documentation can often catch people out when they’re applying for car finance. You will be required to provide payslips and adequate forms of ID. If you’re a business or a sole trader, the financials you’ll be required to present will be different depending on your individual circumstances.
6. Not buying your car at the right time can potentially cost you thousands. Keep the following timing tips in mind:
- a. If you’re looking to purchase a runout model, keep an eye out for “runout sales” which often occur when a car is moving onto a new model or series.
- b. Purchasing during January or February can be beneficial as dealers will have vehicles badged from the previous year that they’d be desperate to clear.
- c. If you’re looking to save on tax, purchasing a car before the end of the financial year can save you money. However, do not leave your purchase to the last weekend before June 30 as dealers would have already counted their numbers and shifted their focus to the new financial year.
7. Not making any attempts to improve your credit rating can result in acquiring a higher interest rate, leading to higher repayments over the life of your loan. Consulting with a professional and improving your credit rating can be a simple process that could save you thousands.
Has learning about the above car finance traps empowered you to take the next step on your car finance journey? The team at Auto Car Loans are here to help! Reach out any time on 1300 301 051 or fill out our contact form to get started.