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Auto Finance Pitfalls and Solutions

PITFALL #1:

Consumers generally spend far less time looking into financing than they do finding the right car at the right price. Overlooking their loan is big mistake, because financing terms play an important role in determining the overall value of the purchase.

SOLUTION #1:

Adopt the mindset that you need to take the time to shop around for your vehicle loan the same way you do for the make, model, features and price. Auto loans may not be as exciting as a sleek new car – but then, saving money never goes out of style.

PITFALL #2:

Many consumers don't know what kind of shape their credit rating is in when they apply for a loan. Credit score plays an important role in determining what kind of interest rate you will receive, so it's critical to make sure your credit report is in the best shape possible before applying for a loan.

SOLUTION #2:

Order a copy of your credit report…look for items that may stand in the way of you getting a good rate…and correct any issues or errors promptly. For example, are all of your lines of credit in good standing? Are there any signs of identity theft? The credit bureaus will tell you how to correct errors when they send you the report.

Experian: 888-397-3742, www.experian.com
Equifax: 800-685-1111, www.equifax.com
TransUnion: 800-916-8800, www.transunion.com

PITFALL #3:

Many consumers are tempted to overspend once they get to the dealership.

SOLUTION #3:

Set a sensible price range for your vehicle purchase. Experts suggest that monthly car payments and related expenses should not exceed about 15 percent of your monthly net income. Bring a printout of your budget to the dealership as a reminder.

PITFALL #4:

Most consumers arrive at the dealership without having researched the current interest rates being offered in the marketplace, so they have no idea if they're being offered a competitive rate.

SOLUTION #4:

Use the Internet as a research tool to comparison shop rates. Visit Web sites of online lenders such as www.capitaloneautofinance.com, which offers competitive low interest rates. Also check out sites like www.bankrate.com for national averages, and the site of your own financial institution. However, even knowing rates doesn't guarantee consumers will receive what's posted. The consumer's credit history and dealer mark-ups are just a few of the many factors that can make a significant difference. The only sure way to know what you'll be paying for a loan is to obtain financing before visiting a dealership.

PITFALL #5:

By the time they get to the finance department, many consumers are mentally worn out – and don't read the contract in its entirety before signing on the dotted line. As a result, they may be agreeing to buy things they didn't plan on (such as an extended warranty, rust proofing, etc.).

SOLUTION #5:

Before you sign any papers or hand over any money, be sure to read every page of the paperwork to make sure you're getting the exact deal you want.

PITFALL #6:

The consumer feels rushed, pressured and confused by the dealership's staff, and is having second thoughts about completing the deal – but does so anyway.

SOLUTION #6:

Consumers who feel out of their comfort zone should walk away. The buyer, not the seller, should be the one in control of the process. Remember, the federal "cooling off" law does not apply to cars or houses (and it only applies when the salesman visits your home, not when you visit his store).