If you’re wondering how to get the best car finance deal, you should understand these 9 common car financing mistakes which could cost you thousands.
Estimated reading time: 4 minutes, 34 seconds.
Buying a new car is one of the most exciting feelings in the world - and this can cause our heart to lead our head. We all want the satisfaction of driving our dream car, but it’s important to understand that a car is also a long term investment. Making a mistake whilst negotiating your vehicle finance can ultimately cost you thousands in the long run.
If you know how to get the best car finance deal, you can avoid the stress and headaches caused by purchasing a car that puts strain on your monthly budget. Here’s a list of the most common (and avoidable) mistakes you can make when negotiating a deal on your new car.
1. Setting your heart on a car before deciding on a budget.If you’ve already predetermined that the only car you want is a Suzuki Grand Vitara and you’re not willing to settle for anything less, you may be ignoring the most important factor to consider when buying a car which is, “Can I afford it?”
If you’re serious about buying a car the very first step should always be a budgeting exercise. Once you’ve determined your affordability bracket, you can start looking at the various models (and the different features they offer) which fall within your budget. Affordability should always be your top concern when buying a new car. The last thing you want is to default on payments three months down the line because you’ve suddenly realised the car is more expensive than you’d planned for.
2. Not checking your credit score.Knowing your credit score can help you negotiate the best possible interest rate, so do your homework and find out what your credit history looks like.
You can obtain a free credit report from any of the following credit information services:
- Credit Bureau
3. Not researching the value of your trade-in.
If you’re planning to trade in your existing car, try to establish its current book value. You can print out the details and take them with you to your dealer so that nobody tries to take you for a ride. Whilst any reputable dealer is unlikely to offer you less than your car’s worth, it’s better to be on the safe side. Knowledge is power.
You can get a free estimate of your car’s current trade-in and retail value from Book Value, an online car book value calculator.
4. Caving under pressure.Don’t give in to sales tactics like “this is a once-in-a-lifetime deal” or “you’ll regret it if you don’t buy right now”. Buying a car is a long term investment which will affect your budget for years to come, so you need to be 100% certain that this is the right decision for your future self. If your gut feel tells you that you need to walk away and think about it, don’t feel under any pressure to do otherwise.
5. Rolling additional extras into your loan.Yes, the black rims look cool and adding a touch screen and soundsystem will really pimp your ride, but if you can’t afford them right now it’s probably better to wait until you can.
You’re able to pop into your dealer and install additional extras at anytime, so don’t be tempted to roll the cost of these extras into your loan. You’ll be paying interest on these extras, so you need to weigh up the long term cost vs. instant gratification.
6. Not speaking to your insurer before signing the paperwork.Part of your budgeting recon should include a call to your insurer to check what the cost of insuring each of the models you are considering will be. Insurance isn’t cheap and you need to look at the bigger picture before you make the final decision to purchase a car.
7. Not negotiating the interest rate.If you don’t try to negotiate a better rate, you won’t get one. There’s nothing to lose. Depending on your credit score and your trade-in or deposit amount, you could knock off a percent or two and save yourself thousands over the course of your loan.
8. Not taking the shortest possible loan term.Remember that interest adds up, so if you can afford to pay a higher monthly installment and secure a loan term of four years instead of five, you’ll save yourself a great deal on interest. Always opt for the shortest loan term possible.
9. Rushing to sign the deal.A car isn’t an impulse buy like that slab of chocolate you grab walking down the aisle to pay for your groceries. A car is possibly the second biggest asset (following your house) that you’ll buy in your lifetime. Having said this, you wouldn’t buy a house in two hours flat without first looking at all your options, weighing up the pros and cons and trying to get the best deal on your home loan.
Treat purchasing your car with the same level of caution that you would your house, and you won’t make mistakes that could have easily been avoided.
Before you set out to buy your next set of wheels, make sure you won’t be kicking yourself on the drive home from the dealership. You don’t want to spend the next three to five years haemorrhaging money because you didn’t do your homework!
If you’d like some more insider tips to help you secure the best possible deal on your new car, download our handy list of questions to ask your dealer or use our instalment calculator to compare premiums.