The average cost of a new vehicle in the U.S. is $48,644. The average salary is $63,795. It’s not hard to see why most people cannot afford to pay for their cars upfront when you consider these figures. However, car buyers of today don’t have to pay for their cars upfront. It’s entirely possible to take out a loan and use that to pay the cost of a new car. Car finance is more popular than ever, with most people’s cars having been financed. This post intends to explore this topic in more detail, which it will do by telling you seven tips for managing car finance.
1. Set Yourself a Budget
The first thing you need to do is set yourself a budget. Figure out how much you can afford to pay for your car each month. You can use a car loan calculator to figure out how much your monthly repayments are going to be. Bear in mind that interest will be added on top of the cost of your car, so you will end up paying much more than you initially borrowed back. It is highly irresponsible to borrow more than you can afford to repay. Overborrowing can lead to defaults.
2. Raise Money for Deposit
You won’t be able to take out car finance unless you have a deposit. Most lenders ask for around 10% of the purchase price of the car that’s being bought. However, some do allow you to pay less. Raising the money for a deposit can be difficult if you are short on funds, but it’s inadvisable to take out a loan, as then you will have to pay back two. Consider selling some of your belongings online or asking your loved ones for money.
3. Shop Around
People interested in car finance should shop around before they commit to a specific loan. The reason shopping around is important is so that car buyers can access better interest rates. The higher your loan’s interest rate is, the more you will have to repay. A lot of people make the mistake of totally overlooking interest rates, but doing this can lead to you ending up having to pay back much more than your car’s worth. Most car dealerships will give you multiple loan options, so again, shop around and find the loan that’s right for you.
4. Short Loan Term
Your main priority as somebody who’s taking out a loan should be on getting the best deal you can. Minimizing the amount of interest you repay is important because it’ll save you a lot of money. One of the most effective ways of saving money in the long term is to take out a short-term loan. The faster you repay your loan, the better. If you keep extending your loan, you will end up paying far more than the car’s worth. Short loan terms can put you under a lot of pressure, but they save you money in the long run.
5. Pay More Each Month
A good way to bring down the amount of money you owe is to pay more than the minimum payment on your finance agreement each month. A lot of people make the mistake of sticking to their minimum payment, even if they have more than enough money to pay more. Paying more towards your loan will make it much easier for you to bring down the total amount and ultimately clear it off. Speak to your lender before you pay more, however. Some lenders charge fees if overpayments are made because if loans are paid early, it reduces their profit.
6. Check Your Credit Score
Before you apply for car finance, it is a good idea to check your credit score. Checking your credit score will help you to get a better understanding of what kind of financial position you are going to be in after taking out finance because your credit report will show you all of your collective debts. When applying for car finance, it’s important to make sure that you are open about your debt, too. A lot of people try to hide their debt to get better rates, but this is a bad idea.
7. Make Each Payment
It is important to make each and every payment on time. Missing even a single one can lead to your account defaulting. A default can have a very negative impact on your credit score, so it’s something you need to do everything you can to avoid. Make sure that if your account does default, you take immediate action and repay the loan in full, lest debt collectors be instructed to collect the money from you.
Managing auto finance can be a challenge if you’ve never taken a loan out before. Hopefully, the guidance given here will help you to navigate the process. Give each and every point consideration, so you can deal with your loan properly.
