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In 2023, the average auto loan held by U.S. borrowers reached $23,792, according to Experian. And the more expensive a car you buy, the higher your auto loan balance is likely to be.
At a time when car prices are high and borrowing rates for loans of all kinds are up across the board following the Federal Reserve’s interest rate hikes, it’s important to do what you can to save money on your car loan — or at least avoid overpaying or getting in over your head. With that in mind, here are some mistakes you’ll want to avoid.
In the course of buying your car, the dealership you work with might present you with what looks like a good financing option. But don’t assume that’s the best deal.
In fact, any time you’re signing a loan, it’s important to shop around with different lenders to compare rates. You may find that one lender is willing to offer you a better deal than another, so spending a little time doing research could result in lower monthly payments.
The higher your credit score is when you apply for an auto loan (or any loan, for that matter), the more favorable your rate on that loan is likely to be. So don’t make the mistake of not checking your credit score prior to applying for an auto loan. And if you see that your score needs some work, try to boost it.
Now that could mean having to hold off on buying your car for a bit of time. The only way to notably improve your credit score in short order is to either correct a mistake on your credit report that reflects poorly on you as a borrower, or to pay off a chunk of existing credit card debt.
If your credit report is error free, and you owe $8,000 on your credit cards but can’t really make a dent in that balance, then boosting your score might come down to actions like paying bills by their due dates over time. But even a few months of timely payments could lead to a higher score. So if you’re not desperate for a new car, waiting until your credit score is in a better place could work to your advantage.
Any time you’re looking to sign a loan, it’s important to run the numbers and make sure the purchase fits into your budget. And that includes an auto loan.
But don’t forget that the cost of owning a car goes well beyond your monthly loan payments. You also have to think about auto insurance, maintenance, and potential repairs.
So don’t just see if the $500 auto loan payment you’re looking at is one you can swing. Instead, do some research to see what it might cost to insure and maintain your car, and make sure that total number works for you.
Signing an auto loan is a big deal, as you could be committing to large payments for many years. So do your best to avoid these mistakes in the course of putting an auto loan in place.
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