7 Mistakes People Make When Looking For A Car Loan

7 Mistakes People Make When Looking For A Car Loan

Even though millions and millions of us have secured car loans for ourselves over the years, it’s not the easiest process in the world to get through.

There are pitfalls at every corner, and dealerships are just dying for you to fall into one of their traps so they can exploit your situation and lock you into an excessively expensive plan.

That’s why we’ve decided to put together a list of the 7 most common mistakes people make when they try to get themselves a car loan in Toronto. We hope that by the end of this article you’ll be better armed to avoid some of the traps, and can get yourself the best possible deal without breaking the bank.

Without any more preamble, let’s get into it. Here are the top 7 mistakes people make when trying to secure a car loan in Toronto.

1: Not Looking Further Than The Rate

It’s a common mistake people make when they’re trying to secure a car loan in Toronto: they see the given rate of any vehicle and develop a kind of tunnel vision, which blocks them from taking notice of some of the more important aspects of the deal.

The monthly rate on offer from the dealership you’ve been negotiating with for your car loan in Toronto isn’t anywhere near to being the full story, and it’s crucial to make sure that you’re not getting yourself into a hole by refusing to look at the other parts of the financing scheme.

As well as the rate, you should be noting down other parts of the overall plan, such as how long the car loan in Toronto is going to last in terms of months; what kind of interest rates you’ll be offered; whether or not the vehicle itself is even something that’s going to be practical for your lifestyle; and if you’re getting an unfavourable rate considering your credit score. Once you’ve taken all of these factors into account, the monthly rate may not seem like such a steal anymore, so be sure to do your due diligence when presented with a loan.

2: Being Too Hasty When Accepting The Offer

Following on from the first common mistake people make when they’re looking for a car loan, something we see way too often is people who jump for the first offer somebody puts on the table in front of them.

Don’t get us wrong—we know better than anybody how stressful it is to try and secure a car loan in Toronto, and once you’ve finally got something down in black and white in front of you, it can be incredibly tempting to simply grab the pen and stick your name on the dotted line. After all, it’s a guaranteed financing plan for that vehicle you’ve been dreaming about for months. Who wouldn’t want to just get the whole thing over with and hit the open road?

If that’s your attitude, though, odds are you’re making some kind of mistake and potentially pricing yourself out of a better deal somewhere else. While this especially applies to people chomping at the bit to sign the very first offer they’ve been given, it’s also a good thing to keep in mind even if you already have been window shopping.

More than anything, you need to guarantee that the car loan in Toronto you sign up to is one that’s going to give you the best shot at keeping your financial health as optimal as possible. A good rule of thumb is to never accept an offer on the spot. Always take your time to consider your options, because you might well regret it later on if you don’t.

3: Not Knowing Your Own Budget

We’ve lost count of how many people come to us looking for help with securing car loans in Toronto who don’t even know what their own month-to-month budget is. It seems like it should be obvious, but for some of us keeping everything neat and tidy is harder than it looks, and before you know it the expenses can stack up and up and you find yourself completely at sea with regards to how much money you actually spend each month, as well as how much of your post-tax income you’ll be able to spend on any given purchase.

Long before you even start negotiations with a dealership with a potential lender for a car loan in Toronto, you should have a detailed account of your own budget, and you should know it backwards.

If asked on the spot, you should be able to present your monthly outgoing expenses, how much cash comes in every month, and how much is allotted to car repayments: both as a percentage of your total budget and as a hard figure. If you don’t know this information off the top of your head, it’s a good idea to go and re-work your budget until you can rattle it all off as quickly as you could your mother’s birthday or your social security number.

4: Unfamiliarity With Your Own Credit Score

Everybody knows how big a role credit scores play with regards to the kind of car loan in Toronto they’ll be offered, but not everybody is as savvy when it comes to their own credit score and credit history as they should be.

Let’s be honest—talking about credit isn’t really much fun. It can be even less fun to sit down and go through your credit history, which is basically a long list of money you had to spend that you don’t have anymore. But a car loan in Toronto of any description is a significant financial purchase, and it’s crucial to ensure that you’re arming yourself with as much information as possible before you even start talks with the dealership in question.

You can get free credit reports in the mail from the three main credit bureaus. If you’re clever about it, you can space them out so that they arrive regularly, and as such give you a well-informed overview of the state of your credit.

Just like you should know your budget figures off by heart, so too you should have a similarly easy time rattling off what your FICO credit score is (even though there are hundreds and hundreds of credit score calculation algorithms, the FICO score is the most important, so that’s the one we recommend getting to know intimately. It’ll really help you when it comes to the negotiations to know exactly what your score is, as well as how healthy your credit history is in a more general sense.

5: Forgetting To Window Shop

A window with a plant on the sill.

We often think of window shopping with regards to more immediate purchases, like televisions or refrigerators. But why shouldn’t you apply the same logic to the car loan in Toronto you’re trying to secure for yourself?

After all, the similarities between the two situations are striking—both things are going to cost you significant amounts of money, and in each case, it’s totally possible that the deal one person is offering you could be beaten by another person selling roughly the same product further down the road.

When it comes to window shopping for automobile loan financing plans, don’t be afraid to knock down the door of every dealership within easy reach. The individual dealerships themselves might express dissatisfaction at what they perceive as your flightiness, but that’s not your problem.

You’re perfectly entitled to try and get yourself the best deal, and you should exercise that right as much as you possibly can.

Too often people only go to one or two dealerships before making their decision. That’s terrible financial practice and a bad habit to get into, so make sure that you’re looking around for the best car loans in Toronto before you ever even think about putting your name to the contract.

6: Being Too Emotional

A Buddha with two faces, displaying different emotions.

Emotions come into play in a lot of ways in regular human life, and trying to secure a car loan in Toronto is no different. However, it’s a good idea to use reason instead of heart when it comes to any financial decisions, and such a long-term commitment as a car loan in Toronto is going to necessitate you to be logical rather than emotional even more than most purchases.

When we find a car we like, we can often get attached to it very easily. Sometimes, it happens practically instantly, and it can be for the most superficial of reasons.

Colours are one big area people find themselves attached to certain cars; other cosmetic changes like spoilers, wheel rims, the paint job, or even the interior can also influence how we feel about any given vehicle.

If this is how you’re thinking about the car you’ve got your eye on, you’re opening yourself up to being exploited by the dealership you’re talking with, given that all they’ve got to do is change the colour of the model slightly and you’ll be sent into a tailspin, which will create a weakness they can pounce upon to direct your attention towards another, more expensive mode—and that’s just one example of how being too emotional when it comes to financial decisions can come back to bite us.

7: Putting The Car Ahead Of The Finances

Most people think that the way to go about getting approved for a car loan in Toronto is to start off by finding a model of the car they like, and then going ahead and trying to sort out what the financing schemes for that model may be, and which they can afford.

We think differently, however. If you want to be truly financially responsible when it comes to securing your automobile loan, you’re going to need to put the same process into action, but in reverse.

Practically speaking, this means that you need to sit down at the kitchen table with your budget and credit information and start methodically working out what kind of payment plans you can afford, and how long a loan you’ll be able to commit to.

Once you’ve got those details worked out (we recommend coming up with a few possibilities so that you’re not limiting your options too much), it’s time to go and look for a make and model of car that fits the bill for you. It can seem a little counter-intuitive, but the reality is that most of us would be happy in a wide range of different vehicles.

When you’re sure you can afford it, then you’ll be able to exercise some personal preference without committing yourself to a potentially disastrous financial commitment you’ll never manage to get paid off in full.

Conclusion

We hope you enjoyed this article, and that you’ll be able to put these techniques into practice in order to avoid the most common mistakes. If you’re looking for a car loan in Toronto but you’re having a hard time because of a poor credit score, why not give us here at CarLoans.ca a call? We take a long look at every application we receive, no matter what your score is.

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