The thrill of purchasing a new car is quickly diminished by the fear of auto loans and intimidating dealerships. With so much information out there, it’s hard to tell what’s true and what’s false.
Before visiting a dealership, read these five common myths about auto loans debunked to help grow your auto loan knowledge!
“Longer Auto Loans Will Save You Money”
It may feel like you’re spending less on a car with a long loan because your monthly payments are lower. But the longer the loan, the more money you’ll spend on the car. While smaller monthly payments make purchasing a car more attainable, longer payment periods cause you to pay more money.
When determining the length and monthly payments for an auto loan, keep in mind what you can afford each month and the loan’s interest rate. Paying off the loan faster lowers the interest you’ll pay.
“Loans Are Non-Negotiable”
At car dealerships, they’ll offer auto loans that make you feel like there’s no other option. But you can negotiate costs with dealerships. Their goal is to get you to sign an auto loan through their company.
The good news is you can choose to negotiate with the dealership or get approved for an auto loan through another lender. You might find that another bank offers better rates, monthly payments, and more that will assist you through the car-buying process!
“You Can’t Get an Auto Loan Without Credit History”
It may seem impossible to get an auto loan without any credit, but it is still possible! If you don’t have a credit history or any credit score, the best method is to have a cosigner. A cosigner is an individual held responsible for repaying the loan to the lender. Although you’re the person buying the car, the auto loan is approved through the cosigner’s credit score. If you need a cosigner, have a conversation with someone you trust to help you through the process.
If you don’t have any credit history, you should consider a credit union credit card to help you reach your financial goals. While some assistance from a cosigner is acceptable, it’s important to assert your independence and develop a good credit score for important future purchases.
“Auto Loans Will Ruin Your Credit Score”
When you sign up for an auto loan or any loan, you might see a small decrease in your credit score. This is because it increases your debt. Since the loan is established and there is no payment history yet, it’s completely normal to see a small decline. This number is quickly fixed by making your first few monthly payments on time. It’s always important to consistently pay your bills so you don’t go into further debt or damage your credit score.
“You Want To Make a Small Down Payment”
Another common auto loan myth is that making a smaller down payment will give you more money for other expenses. A small down payment means you will pay much more for the car than the price listed. The loan amount and the length of the loan will all increase. It’s more beneficial to put down as much money as possible to buy the car and continue with your other essential expenses.