The thought of purchasing a new vehicle is something that millions of Americans dream of. Whether it’s your dream vehicle or a new minivan for the family to enjoy, purchasing a car is an exciting and fulfilling investment. It can be easy to forget about some of the important factors associated with purchasing a car, however.

With this in mind, this article was created to help you understand 4 things you should know before taking a car loan. They include:

• Ensuring that your loan is preapproved

• Being mindful of long-term loans

• How your credit score will impact your purchase

• Being wary of extra charges

No one likes to get into the boring details of loan approvals, credit scores, and other financing options. But, they’re incredibly important to understand when making such a large financial investment. After a house, a car is likely going to be the second-largest purchase a person will make in their lifetime. You need to make sure you’re going about it in the best way possible.

This is important as American car payment delinquencies set a record just a short time ago in 2019. 

Keep reading to learn the nitty-gritty details of 4 things you should know before taking a car loan. It’ll save you time, effort, and money.

Getting Preapproved

Getting a loan preapproved before you head off to the dealership can help you get a better price on your vehicle.

Most dealerships are quick to talk to you and offer financing options, but you’ll likely be getting a poor rate. They understand most people don’t come prepared and thus can talk them into getting financing options through them.

Pick your lender of choice and become preapproved for better interest rates on the vehicle you want to purchase. In the long run, you’ll be saving tons of money.
 

Your Credit Score Matters

If this is your first time borrowing a large amount of money, you might be unaware of how important your credit score is.

The interest rate of your loan will vary depending on your credit score. Your credit score is how lenders rate you in terms of reliability. The higher your credit score the more likely lenders are to give you low rates as they deem you trustworthy when it comes to making the payments. With a low credit score, lenders will make you pay higher interests as you’ll be considered a risky investment.

This is highlighted when bankers or dealers advertise low-interest rates. While they do have low-interest rates, they’re typically only given to those with excellent credit scores. It’s a tactic used to draw people in to coerce them into making a sale.

You may also be asked for a hard and soft inquiry depending on your credit score. These are asked to find out past information about your purchase history.

Watch Out for Long-Term Loans

Dealerships love to offer long-term loans to customers. On a surface level, they seem like a great deal because of how low monthly payments can be.

However, you should know that you’re going to end up paying more money over a longer period with these loans. More interest will accumulate and thus more money is coming out of your pocket, even if it doesn’t look like it.

Car dealerships know this. In fact, they’ve become so good at getting people to sign up for long-term loans, they make more profit on the loans than they do the cars. This is because the average loan on a car is more than six years.

In essence, dealerships will prey on those who see small numbers and believe that they’re getting a better deal. If you’re wanting to get the best bang for your buck on a loan, you shouldn’t take anything that lasts longer than 60 months.

If you need help estimating payments on a loan, Forbes has a great article with a calculation included. That'll help you along tremendously.

Extra Charges Often Hurt More Than They Help

Lenders love to pitch extra charges to you. They’ll offer to finance the car’s purchase price, the tax, the title, the license, and a heap of other things if you let them.

While this will help you in the short term, it’s going to add up and potentially cost you big bucks in the long term. All of these things that they pay for will come with interest generated on your end.

If you can afford to pay for these extra charges on your own, you should. Don’t let lenders fool you into paying more than necessary.