Most of us don’t pay cold, hard cash for a new car, but opt to take out a car loan. Applying for a car loan can be a simple process that lets you buy the car of your dreams, at a monthly repayment rate you’re comfortable with. Just make sure you’re not guilty of these common mistakes and misconceptions.
Taking balloon payments at face value
A balloon payment is where you defer a portion of the cost of the vehicle till the end of the loan term. You pay a smaller amount every month, and at the end of the term pay everything you still owe in one lump sum, called a balloon payment.
Balloon payments allow you to pay off a car that you otherwise couldn’t really afford, but that in itself should tell you some measure of the risk. If something looks too good to be true, it usually is. It’s best to live within your means.
Many people aren’t even aware what they’re getting themselves into when they sign on for a balloon payment. They’re happy to see how affordable the monthly payments are, but aren’t prepared for that final bill. Make sure you know what you’re signing on for by carefully reading the fine print.
Thinking insurance will cover what you still owe on your loan
Many people think that if they total a car while they still owe money on it, their insurance will cover the loan. Not necessarily. What you actually need is gap protection, which is sometimes referred to as insurance, but is actually a kind of debt cancellation agreement.
If you write off your car and its current cash value is lower than what you still owe on it, you will have to pay that difference yourself. Unless you have gap protection.
Negotiating the wrong price
If you’re looking for pre-owned cars in South Africa, there’s good reason to go to the salesperson prepared to negotiate. However, don’t try to negotiate the monthly repayments. Rather negotiate the purchase price. While you should know beforehand how much you can pay, don’t start with that when you meet the salesperson. This makes it harder for you to get wiggle room for a deal with really good payment terms.
Assuming what institutions will have the best rates
Some people assume they’ll get the best car loan deal at the auto dealer; others think that it’s going to be at a credit union or other financial institution. The truth is that it depends. You should rather check around first and compare quotes, because you can’t be too sure where you’re going to get that great deal you want.
Not realising you can qualify for car loan refinancing
The above mistakes apply if you’re still the process of getting a loan. This one, however, is good to keep in mind for later.
Most people know that you can refinance your home loan and secure better payment terms that will save you money over the lifetime of the loan. But many people don’t know that you can do the same with your car. If you’re paying off a loan and you don’t think you got the best deal you could, there’s still time to change the situation around by refinancing your car loan.
A lot has been written about buying a car, but equally important is the financing aspect of it. Armed with a little knowledge, you can avoid these common mistakes and misconceptions associated with car loans, to make sure you get a deal you won’t be sorry about later.