Biggest Financial Mistake When Getting a New Car Loan

There are a lot of financial mistakes you can make when taking out a new car loan, but one of the biggest out there is usually associated with leasing a vehicle. Leasing cars can be pretty enticing because they require no down payment, and usually offer a lower monthly payment than purchasing a new car. However, it’s usually for the best that you don’t travel this route.

Reasons to Avoid Leasing

  • Early return penalties. When you purchase a new car, you very often don’t want to keep it for the length of the loan, which is fine when you’re buying a car. But if you lease it, you may have to pay a high penalty when returning it early.
  • Mileage limits. Most people don’t know off the bat that leasing a vehicle comes with the term and condition of staying within a certain number of miles each year. Not much different than the mileage restrictions you might see on a rental car, if you drive outside of these mileage limitations, you’re setting yourself up for a disastrous penalty.
  • You can’t keep the car. Unless you set up an agreement to purchase the car after the lease ends, you have to give that car back – and in good condition. So you’ve basically paid on something you can’t own – not the best financial move in the world.

Other New Car Mistakes

Another major financial mistake that some new car loan recipients make when buying their vehicle is taking out a loan they simply cannot afford. While the dealership may take some responsibility in checking out what you can afford based on your income, only you really know what you have to pay with your check. They focus more on monthly payments, which you should avoid. If you don’t have a huge cushion after paying your car note then it is simply too high of a price.

Also, if you take out a super auto loan – one that extends over 6 or 7 years – you might be setting yourself up for a major financial mistake. It’s not easy to predict what your financial situation will look like that far out, which is why some experts suggest staying away from these types of loans. However, because they present much lower monthly payments they can be hard to resist. So travel this road with caution. You don’t want to get stuck with an upside-down loan, or lose your job leaving you with nothing to make your payments with. You might also be paying much more in interest over the course of the loan than the car will be worth.

If you want to avoid making financial mistakes when getting a new car loan then try to avoid what’s mentioned above. By making good choices when you secure your loan, you can feel great about the new car you’ve purchased.