Top car loan mistakes to avoid

family excited to drive their new car

 Estimated read time: 2 Minutes

When you’re looking to buy a car and are looking to finance it with a loan, it’s generally a good idea to know all the implications involved. Here are some common mistakes to avoid when organising your car finance. 

Not doing your research before buying a car

Mistake 1. Not doing your research before buying a car

Don’t underestimate the importance of doing your homework before purchasing a car through finance. First, it’s a good idea to read up and get advice about the type of vehicle you want – consider how often you’ll use it and what it will be used for. Some considerations include fuel economy, reliability, and price. Expert car review sites or other credible sources can be a good resource to obtain independent advice and aid the research process.
Not calculating what you can afford before taking out a car loan

Mistake 2. Not calculating what you can afford before taking out a car loan

Before approaching a lender, make sure you fully understand your financial situation. Consider your existing debt and any upcoming large purchases that could affect whether you can afford to invest in a car loan. Once you have a quote for car finance, do the math and check to see if you can comfortably meet the car’s monthly repayments, car registration, stamp duty, and all the other various costs that go into buying and maintaining a car.
Not considering the overall purchase price

Mistake 3. Not considering the overall purchase price

If you’ve already decided to take a loan to assist in the purchase of your car, don’t focus solely on how much your monthly repayments are going to be. While a longer repayment term may lower your monthly repayments, this approach also increases length of time you’ll be paying off the interest, so the overall amount you’ll pay could increase. You could also try to negotiate for the best car loan rate and best purchase price possible, and understand any extra fees you might have to pay such as stamp duty or dealer delivery charges.
Not getting your car loan pre-approved

Mistake 4. Not getting your car loan pre-approved

Before browsing for a new vehicle, it’s generally a good idea to get your car loan pre-approved by your lender or car dealer. This allows clarity over what you can and can’t afford, so you won’t be tempted to push your financial boundaries. It’s worth noting that the pre-approval may only be available for a short period of time – so you may have to move quickly once the pre-approval has been received.
Not putting a down payment

Mistake 5. Not putting a down payment

If you’re in a financial position to do so, consider making a down payment – a lump sum, or deposit that will reduce the amount you owe. This could help reduce your monthly repayments and the overall interest you’ll end up paying.

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Contributor | Andrew Gamble, Head of Sales - Asset Finance

Andrew brings more than 20 years of experience in the finance industry. His strategic vision, leadership and his customer centric approach has contributed to the significant growth of Pepper Money's Asset Finance business. Read more.

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