The Auto Loan Mistake That Hurts Most When Rates Stay High
Written by
Lydia Kibet
Edited by
Zuri Anderson
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With car prices still elevated and interest rates stubbornly high, the way you finance a vehicle can cost you just as much as the car itself. Many buyers walk into dealerships focused on the monthly payment without realizing how this can turn a manageable purchase into years of financial strain.
Here are the most common auto loan mistakes consumers make when rates stay high and what to do instead, according to experts.
Focusing Only on the Monthly Payment Instead of the Total Cost of the Loan
When rates are high, it can be tempting to stretch your loan term to lower your monthly car payments. However, this can be the most costly decision you make. While this will make it affordable, “Longer terms often mean paying more interest over time,” said Brit Simon, chief experience officer at National Debt Relief.
Longer terms such as 72, 84, or 96 months can lower your monthly car payments. But it can also mean paying interest for years on a vehicle that’s steadily losing value.
Buying at the Top of Your Budget and Ignoring the Full Cost of Ownership
The loan payment is only one part of the equation. There’s registration, gas, insurance, maintenance, and unexpected repairs, which all add to the total cost of owning a car.
“When rates are elevated, that payment consumes a larger share of take-home pay, leaving less room to absorb rising housing costs, utilities or healthcare expenses,” Simon said. Many people end up relying on credit cards to stay afloat.
“Over time, that dynamic can create a domino effect, where a high car payment doesn’t just strain the budget, it shifts everyday expenses into revolving debt,” Simon continued.
Skipping Preapproval and Failing To Shop Around
Another costly mistake happens before you even step onto a dealership lot. Kevin Wince, vice president, consumer lending operations at Navy Federal Credit Union, recommends getting a preapproval from your bank or credit union, regardless of whether you’re looking to buy a new or used car.
“Getting preapproved before you walk into a dealership provides an edge because you’ll know exactly how much you can finance, your estimated interest rate, how long you’ll have to pay back the loan, and an estimate of your monthly payment,” he said.
Preapproval helps you set a clear budget and compare your options to make sure you’re getting the best deal and saving as much money as possible on interest.
Waiting Too Long to Act When Payments Become Unmanageable
“One of the most costly mistakes borrowers make isn’t at the time of purchase,” Simon said. “It’s waiting too long to address a payment that no longer fits their budget or to explore solutions like debt settlement to help them get back on track.”
Unlike credit cards, refinancing auto loans can be difficult when rates are high or your credit score has taken a hit. Falling behind on payments can lead to repossession, which impacts more than just credit.
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