Most people who buy a new or pre-owned vehicle from a dealership choose to finance their purchase rather than paying cash upfront. While this makes financial sense for most people, making a mistake while negotiating the terms of an auto loan can end up costing the borrower a lot of money.
1. Credit reports sometimes contain mistakes.
People with lower credit scores often must pay higher interest rates on loans, so anyone considering borrowing money should become very familiar with his or her credit report. Sometimes mistakes happen. These errors should be fixed before meeting with a lender. Some shoppers might even find that dishonest lenders may try to claim their scores are lower than they actually are. Being familiar with all three reports could give the borrower additional negotiating power and save a lot of money in the long run.
2. Shop around for the best deal on an auto loan.
Although dealerships often advertise low-APR specials, those rates are usually reserved for borrowers with the best credit. Many people will find better terms at a credit union or an online or community bank. If the borrower gets prequalified at a bank, they will be in a better position to negotiate at the car dealership without being legally bound by any agreement with the bank. Bonus tip: Any credit inquiries within the same two-week period will only count as one inquiry when affecting a report.
3. Some lenders will take advantage of subprime borrowers.
Some dishonest lenders will offer high-interest loans to drivers with poor credit, and as soon as the driver misses a payment, the dealership will confiscate the car and resell it. Defaulting on a loan will do additional damage to already bad credit, so borrowers should be sure they can afford payments before agreeing to a loan. Even subprime borrowers should shop around for the best APR. Auto lending requirements are usually lower than mortgage requirements, so shoppers should check to make sure they are getting the best deal.