If you’re planning to buy a car, you might be in the market for a car loan. This assumption can be made because 84% of Americans financed a new car in 2017 according to Consumer Reports. Unfortunately, there are a lot of misconceptions about car loans. Let’s take a look at a couple of them in an attempt to clear the air.
The monthly payment is all that matters – Even if the payment fits your budget, focusing only on the amount might result in you paying too much. This is because you might get distracted by the total cost of the car including the price and the interest charged on the loan. Your best bet is to compare what the dealer is asking for the car and the loan's interest rate with what other dealers are offering.
A 0% interest-free loan is the way to go – Many dealers offer customers the option of a 0% interest-free loan. On paper, this sounds like a very attractive option. However, it’s not all sunshine and rainbows. The maximum term for an interest-free loan is less than three years. This means that the borrower has limited flexibility with the loan. Increasing the down payment on an interest-free loan is an option for people who’d like to decrease the loan amount.
The best interest rates can be availed by applying for a loan through a dealer – This misconception is quite common and is almost never true. Applying for a loan through a car dealer usually results in the car dealer not comparing offers, which means that you don’t get the best deal. Don’t rely on them to do your homework. Instead, doing the work yourself will usually give you a much better deal on your car loan.
You can’t get a car loan for a used car – This is completely false. You can opt for financing for a used car. Used car loans are great since used cars tend to be much more affordable which makes the loan a lot more affordable.
There are plenty of other misconceptions about car loans. Make sure you do your research instead of blindly believing in statements made by other people who aren’t in your shoes.