4 Common Mistakes in Car Financing and How To Avoid Them

August 4th, 2023

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Buying a car is part of every Australian’s dream – it’s probably a really close second to owning your own home!

So, when it comes to vehicle finance, you want to make sure that you’re getting the best deal when you finally get your very own car. However, car financing is an intricate process, and it’s easy to get lost or overwhelmed, especially when you have your eyes set on your dream set of wheels.

This may lead to car financing mistakes that could cost you in the long run.

But don’t worry, there are ways to avoid these mistakes.

In this article, we’ll discuss the most common mistakes people commit when financing a car purchase and share some tips on how you can avoid these and save money as you prepare to drive the car of your dreams.

But just before we begin, remember, this is just general information and is not meant as financial advice. It’s smart to talk to your finance specialist first for more personalised info.

What is car financing?

Let’s start by exploring how car financing works.

Car financing refers to the number of options that you can choose from to buy your dream car without paying outright in cash. Whether you’re buying a new car or a used one, you can finance your purchase by:

• applying for a car loan
• car finance lease
• Commercial Hire Purchase (CHP)
• novated lease

To learn more about these car financing options, read: What are the best ways to finance your car purchase?

What are common car financing mistakes and how can I avoid them?

With several finance options available out there, it’s important to find the right one for you, depending on your unique circumstances and goals for the car purchase. This way, you can avoid costly mistakes and drive away in your dream car with the best deal.

Here are 4 common mistakes that we often see when financing car purchases, as well as our tips on how you can avoid them:

1. Focusing on monthly payments

It’s a common mistake to concentrate on monthly repayments when discussing your financing options. Of course, it’s easier to think about how much you can afford to pay every month.

However, while it helps to know how much you’ll have to pay monthly, it’s better to have a big-picture look at your financing option. Beyond the monthly payments, check the following:

• the overall cost of the loan
• interest rates
• repayment terms

This way, you can avoid extended loan terms and higher interest expenses.

2. Not leveraging your credit score to negotiate

Finance interest rates can be determined by creditworthiness, so if you have a high credit score, you can negotiate for a lower interest rate.

The average car loan rate is approximately 9.49% p.a. If you can negotiate at least a per cent lower and get an 8.49% p.a. rate for a $20,000 car loan, you can save hundreds of dollars during a 48-month loan term.

If you know your credit score before getting a car and have an idea of the interest rates that match, you can steer the negotiation in your favour and drive away with the best deal.

3. Opting to finance the cost of add-ons and accessories

Next up: let’s talk about add-ons, accessories and warranties.

These costs are typically added on top of the actual cost of the vehicle and, more often than not, they appear as hidden charges that are not explicitly discussed. When you opt to finance these add-ons, you will be charged interest on them which will cost you more in the long run.

So, when you look at your loan contract, ask about every added fee and avoid unnecessary add-ons. If you really want add-ons such as an extended warranty or gap insurance, it may be better to pay for them outright so they don’t add up the overall cost of your loan.

4. Skipping research on financing options

Finally, there’s skipping research and taking shortcuts in car financing.

As in everything, preparing before making a big decision is crucial to car financing. While it’s easy to fall into the trap of settling for the first option you find, extensive research can save you a lot of money in the long run.

By comparing all available options from dealers, lenders and banks, you can get better interest rates and more favourable loan terms.

Now you know the vehicle financing mistakes to avoid!

These are some of the most common mistakes we have seen people commit in car financing, many of which have come at great costs.

However, this is general information only. The right finance option for you must take into account your unique circumstances and your goals for your car purchase – so always do your research.

While we can provide general car financing information, if you have any specific questions, it’s best to ask your trusted financial professional.

To navigate the complexities of buying a car, it helps to have guidance from car-buying experts who can find you the best deals and make the experience seamless as you choose your dream car.

If you find that you still have general questions about car financing, our team at Private Fleet will be happy to answer your concerns and help you find the best deals for your car purchase.

Simply reach out to us and we can have a chat about your options.

Find the right (and affordable) vehicle for you with Private Fleet.

Private Fleet empowers you to gain all the benefits of a fleet purchase, but as a private buyer.

Backed by decades of vehicle industry experience, fleet buying power and a network of car dealers across Australia, we are here to ensure that buying your next vehicle will be as straightforward as possible for you.

Shopping for a car is an enjoyable process – let us make it hassle-free, too.

Reach out to us today for a seamless and simple car-buying experience.