Most Common Car Financing Issues & How to Solve Them


You’d think that with all the information available at people’s fingertips, today’s car buyers would be far more shopping-savvy and better equipped to strike the best car financing deal possible. Unfortunately, a quick look at car buying forums and you’ll see that mistakes and buyer’s remorse remain common.

A major reason why car buying mistakes still occur is that for most car buyers, the purchase decision tends to be more of an emotional one. When an individual sees his or her dream car, all rational thought can go out the window, and the only goal that remains is to drive the car home no matter what the cost, which can oftentimes be steep.

The world of car financing is already confusing as it is, and you certainly don’t want your emotions thrown into the mix. The experts at Carmudi put this list together to help you overcome any car financing problems you might have. From credit pitfalls to negotiation missteps, here are 10 car financing issues and how to solve them.

## Shopping before you know your credit standing

Not checking your credit first is one of the biggest car financing mistakes you can make. Your credit score is the most influential factor in your car loan application getting approved, not to mention the rates and terms that financing institutions will offer you.

To ensure the best rates, check your credit score before you start shopping. If your score is at the low end of the spectrum, you may want to work at fixing it first to get better loan rates.

## Not putting down a large down payment

Some lenders offer car loans with minimal to zero down payment. Though these is extremely enticing, know that there’s a price to pay for such convenience, and this often comes in the form of sky-high interest rates.

To avoid having very low equity and getting buried by your car loan, save up for a hefty down payment. Before the prevalence of zero-down deals, a 20 percent was the norm, but it can be wise to go even higher. It may hurt your wallet now, but you’ll be out of debt faster. Short term pain for long term gain!

## Deciding too quickly

If you don’t know how car financing works, you might rush into the process and grab the first deal that you can. The trick is to not believe the first sales pitch, and shop around.

Dealership financing is usually more expensive than what you can get from a bank or credit union. As part of the car buying process, you should always take the time to compare auto loan rates from various sources.

## Not knowing what you want

Just as deciding too quickly can be harmful, so can not knowing what you’re looking for in a car that you intend to purchase. Some car buyers start the buying process with just a vague idea of what they’re looking for, hoping that they’ll just stumble upon the necessary information along the way.

Unfortunately, this mentality can make you fall prey to a deceptive sales person who will steer you toward a deal that puts more money in the dealer’s pocket and not necessarily what’s right for you. Thus, it pays to identify your transportation needs and wants so you’ll know if the car you're being shown fits into your plan.

## Failure to consider additional fees

When most car buyers think about how much they have to pay every month, they only look at the final negotiated price, which often doesn’t include added fees such as taxes, insurance, licensing, and additional extras, such as extended warranty.

The moment these added fees appear on the bill, some shoppers may start to feel ripped off, as they end up paying more than they wanted. So before you sign on the dotted line, make sure all taxes and fees are accounted for.

## Failure to consider overall operating costs

More than the purchase price and fees, there’s also the overall operational costs to look forward to. Consumables must be replaced, filters must be cleaned, fluids must be topped of, and of course, fuel must be put in the tank.

The fact is, some cars are more expensive to operate than others, and many car shoppers miss out on this, which could put them in a bad position financially. To avoid this pitfall, look into how much the typical periodic maintenance service costs for the vehicle you’re interested in.

Check the possibility of buying parts from alternate sources. If you’re buying a used car with an expired warranty, research on securing both parts and services from independent specialty repair shops.

## Going with the popular choice

Many car buyers base their purchase on recommendations from people they know or trust, from friends and family to car reviewers from the media. But as they say, taste is subjective, and what other people like may not be what you like.

To ensure that you yourself are going to be happy with your purchase, test drive a handful of different brands so you can identify which best suits your taste.

## Not having a backup plan

It’s a good idea to have a safety net even if you’re confident that you can make the monthly payments of your car loan. Life situations can change in an instant, and having someone to fall back on can spell the difference between having enough and doing without. Thus, it can help to apply for a loan together with a guarantor or co-borrower.

Aside from giving your lender added security for their money, this can also reduce the possibility of nonpayment. Should you be suddenly be unable to pay, the guarantor can pay the loan on your behalf.

## Not negotiating properly

When you’re negotiating, don’t base your target price on the MSRP. Instead, base it on the dealer invoice price, and go from there.

## Letting your guard down

Most buyers start relaxing once they strike a deal with a car salesperson. However, know that a dealership can still bleed you dry after the sale by pushing higher interest loans upon you or luring you with add-ons—such as undercoating, chrome wheels, leather seats, etc.—that you don’t really need.

Negotiate just as hard after you’ve settled on the initial price, and check first if you really need that add-on or not.

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