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6 common car loan mistakes that cost you money Part Of Buying a Car In this series Buying a Car Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering interactive tools and financial calculators as well as publishing objective and original content. We also allow you to conduct research and compare data for free – so that you can make sound financial decisions. Bankrate has partnerships with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The products that appear on this site are from companies that compensate us. This compensation can affect the way and where products appear on the site, such as such things as the order in which they be listed within the categories of listing and other categories, unless prohibited by law. This applies to our mortgage or home equity products, as well as other products for home loans. This compensation, however, does affect the information we publish, or the reviews that appear on this website. We do not cover the universe of companies or financial offers that may be open to you. My Ocean Production/Shutterstock

5 min read Published March 02, 2023.

Written by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is an expert in understanding the details of borrowing money to buy cars. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to manage their finances with concise, well-studied facts that break down complex topics into manageable bites. The Bankrate promises

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In 1976, Bankrate was founded. Bankrate has a long experience of helping customers make informed financial decisions.

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They ensure that what we write ensures that everything we publish is accurate, objective and trustworthy. We have loans reporters and editors are focused on the points consumers care about the most — the various kinds of loans available, the best rates, the top lenders, ways to pay off debt , and more — so you’ll feel safe investing your money. Editorial integrity

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There are money-related questions. Bankrate has answers. Our experts have helped you understand your money for more than four years. We continually strive to provide consumers with the expert guidance and the tools necessary to make it through life’s financial journey. Bankrate follows a strict policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters provide honest and trustworthy content to help you make the right financial decisions. The content we create by our editorial staff is objective, factual and uninfluenced from our advertising. We’re honest regarding how we’re capable of bringing high-quality information, competitive rates and helpful tools to our customers by describing how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods and services, or through you clicking certain links posted on our website. So, this compensation can impact how, where and in what order products are listed and categories, unless it is prohibited by law. We also offer mortgage or home equity products, as well as other home loan products. Other factors, like our own website rules and whether or not a product is offered in the area you reside in or is within your own personal credit score could also affect the manner in which products appear on this site. While we strive to provide the most diverse selection of products, Bankrate does not include information about each credit or financial products or services. If you are looking to save money on your next car purchase, you will require more than just make a great deal with the salesperson on the . Making a mistake when purchasing a could cost you money and erase any savings that you have negotiated on the purchase price. However, it’s not that common, particularly among people with good credit scores. A report from the Financial Times revealed the fact that 3 percent of prime and super-prime customers had auto loans with APRs of at least 10 percent, which is more than double the rate they would normally pay for their credit scores. Don’t shop around for the best deal for auto finance is just one of the mistakes you should avoid. There are other mistakes to be aware of if you wish to land the best price possible. 1. Not shopping around is an easy and practical way to get a car loan, but it also costs extra. Dealers typically mark their rates up by a few percentage points to make sure they earn. Before you visit the dealership take a look at other options and credit unions or banks. This will give you an idea of the interest rates available to your credit score and make sure you are getting the best deal. Be aware that the requirements of banks could be more strict as compared to credit unions’ but they can offer better rates than you’ll find at the dealership. If this is your first time purchasing a vehicle, look for financing programs that are designed for buyers who are first-time buyers. These can be found at credit unions. When you’ve been preapproved for an loan and you’re able to negotiate with the dealership more effectively. After all, if the dealership isn’t willing to beat the rate you currently have, you don’t have to count on their financing in order to obtain the car you want. What’s the most important takeaway

Preapproval can ensure you receive the most competitive rate and gives you leverage to negotiate.

2. Negotiating the monthly installment rather than the purchase price Although the monthly payment on your car loan is vital — and you must know in advance each month — it shouldn’t be the sole basis of your . When you’ve made it clear, a monthly car loan amount informs the seller how much you are willing to spend. The salesperson may also attempt to conceal other costs, such as a higher interest rate and other fees. They could also offer you on a more lengthy payment timeframe, which can help keep your monthly payments within your budget, but could can cost you more overall. In order to avoid that, you should negotiate the purchase price of the car and each instead of focusing on your monthly payment. Important takeaway

Don’t buy a car based on the monthly installment alone as the dealer might make use of that number to put negotiations at a standstill or upsell you.

3. Letting the dealer define your creditworthiness. Creditworthiness determines your interest rate A borrower who has a high qualifies for an improved vehicle loan rate than one with a low score. Reducing just one percentage point interest from a $15,000 vehicle loan over 60 months could be a huge savings in the interest over the life of the loan. Knowing your credit score prior to time puts you in the driver’s seat in negotiations. With it, you will know the price you can expect — and if the dealer is trying to overcharge you or lie about what you qualify for. What is an unacceptable APR for an auto loan? New auto loans were at 6.07 per cent in 2022’s fourth quarter, according to data from . The credit score of those with excellent credit was eligible for rates of around 3.84 percent, while those having bad credit had an average new vehicle rate at 12.93 percent. The rates for used cars were higher than 10.26 percent across all credit scores. The highest rate was 20.62 percent. Therefore it’s a “bad” annual percentage rate for a car is on the higher end of these figures. Legally, loans cannot have an interest rate of more than 36 percent. Seek an lender that offers you an APR that is based on your credit scores, or higher. The most important thing to remember is

Check out a variety of lenders to determine your estimated interest rates and do whatever you can to improve your credit score prior to heading to the dealership.

4. Do not choose the correct term length range from between 24 and 84 months. More lengthy terms can offer attractive, lower payments. However, the longer the term , the more cost of interest you’ll be paying. Some lenders also charge a higher interest rate when you choose to take longer repayment terms because there’s a greater risk you’ll become upside-down on the loan. To determine the best choice for you, take a look at your needs and priorities. For instance, if you’re a driver interested in getting driving a new vehicle every few months, then an extended loan is probably not the right choice for you. However in the event that you’re on a limited budget then a longer-term contract might be the only option you can afford your vehicle. Use a to understand your monthly payment and decide which one is the most suitable for you. What you should take away from this

A short-term loan will cost less overall in interest, however, it will also have higher monthly payments. A longer-term loan will come with smaller monthly payments, however it will cost you more interest costs over time.

5. Financing the costs of add-ons Dealerships profit from — especially aftermarket products that are sold through the finance and insurance office. If you’re looking for an insurance policy or the gap insurance items are available at a lower price from outside sources. The addition of these items to your financing will also result in more expense in the long run because you’ll have to pay interest on them. Be sure to inquire about every charge you don’t understand in order to avoid unnecessary costs to the cost of your purchase. If you find an additional item you really want, pay for it out-of-pocket. It is better to check if it’s available outside the dealership at a lower cost. The purchase of a third party is often cheaper for aftermarket products such as extended warranties and . Most important takeaway

In the long term the financing add-ons can result in more interest being paid over the long run. Come prepared to negotiations knowing what add-ons are essential and which are cheaper elsewhere.

6. Moving negative equity forward ” ” on an auto loan is when you owe more on your vehicle than the value of it. Some lenders will allow you to roll over that negative equity into a new loan however it’s not a wise decision for your financial situation. If you do this, you’ll be charged interest on the current and prior car. And if you were upside down on your last trade-in, chances are you will be the next time around. Instead of rolling your negative equity into the new loan, try before taking out the new one. You could also pay off your negative equity upfront to the dealer to save yourself from paying excessive interest. Key takeaway

Don’t put negative equity in your car forward. Instead, you should pay off as much of your old loan as you can, or take the amount that is left when you sell your car.

The main thing to success when applying for an auto loan is preparedness. This includes negotiating the monthly payment as well as being aware of your credit scores, choosing the correct time frame, and being aware of add-on charges and not carrying across negative equity. Make sure to be aware of potential mistakes when you negotiate. With the right luck, you’ll walk away with saved money and time. Learn more

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The article was written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers with the ways and pitfalls of taking out loans to purchase cars. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain confidence to control their finances through providing concise, well-researched and well-researched content that break down complex topics into manageable bites.

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