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12 Do’s and Don’ts of Financing a Car

You might think that the process of financing a car is pretty straightforward: you go to a dealership, pick out the car you want, and then work out a loan with the salesperson. In reality, though, there are a lot of things to consider when it comes to financing a car. Here are twelve do’s and don'ts to help make the process as smooth as possible.



1. Shop around for interest rates

When shopping for a car, it is important to shop around for interest rates. Interest rates can vary significantly from lender to lender, so it is important to compare rates before choosing a lender.

Additionally, be sure to ask about any fees that may be associated with the loan. Some lenders may charge processing or origination fees, which can add up quickly. By shopping around and asking questions, you can ensure you get the right deal on your car loan.

2. Compare Different Types of Loans

When it comes to financing a car, there are a few different types of loans available to consumers. Here is a quick overview of the most common types of loans:

Fixed Rate Loan: A fixed rate loan is a loan in which the interest rate remains the same for the life of the loan. This type of loan is ideal for borrowers who want predictability and stability in their payments.

Variable Rate Loan: A variable rate loan is a loan in which the interest rate can change over the life of the loan. This type of loan is ideal for borrowers who want the flexibility to pay down their debt faster if rates drop, or who are comfortable with potential increases in their payments.

Pre-Approved Loan: A pre-approved loan is a loan that has been approved by a lender in advance, before you have found a car to buy. This type of loan can be helpful in speeding up the car buying process, as it allows you to know ahead of time how much money you have to work with.

Dealer Financing: Dealer financing is when you get a loan from a car dealership to buy a car. This type of loan can be helpful because dealers often have relationships with multiple lenders, which can lead to more competitive interest rates.

Personal Loan: A personal car loan is a type of unsecured loan that can be used for any purpose, including buying a car. This type of loan is typically available from online lenders and banks, and can offer competitive interest rates.

3. Consider your credit score and history before applying for a loan

When you’re looking to finance a car, it’s important to keep your credit score and history in mind. Lenders will look at your credit score to determine how risky it is to loan you money, and they may also look at your credit history to see how reliable you are when it comes to paying back debts.

If your credit score is low or you have a poor credit history, you may have a hard time getting approved for a loan. You may also have to pay a higher interest rate if you are approved. So, if you’re planning to finance a car, be sure to work on improving your credit score and history before applying.

4. Find out what your monthly payments will be before signing any paperwork

This will help to ensure that you can actually afford the monthly payments that will be needed. Failing to pay will result in unfortunate consequences.

5. Get pre-approved for a loan before going to a dealership

This will save time and money for both you and the dealer.

6. Be prepared to put down at least 20% of the purchase price

A lot of dealers will require a deposit. This will increase their trust in you, resulting in lower interest payments.

7. Keep an eye on your credit score throughout the loan application process

Mistakes can happen, and you don’t want them to lower your score and increase your interest rate unnecessarily.

8. Make sure you understand all the terms of the loan agreement before signing anything

Once signed, it is your responsibility.

9. Factor in additional costs

Such as insurance, registration fees, and taxes when budgeting for your new car.

10. Consider the long-term cost of the loan

A loan with a higher interest rate may have lower monthly payments but will end up costing you more in the end.

11. Include recurring expenses into your budgeting

Recurring expenses include gas and maintenance.

12. Do your research before going to a dealership

Know what the average price is for the type of car you want so you can avoid getting overcharged.


1. Don’t be tempted by low introductory rates that jump after a few months

These might look appealing, but often end up more expensive in the long-run.

2. Don’t forget to read the fine print when it comes to loan terms and conditions

As mentioned earlier, once the conditions are signed, the responsibility is yours. Don’t miss anything!

3. Don’t be afraid to walk away from a deal

Especially if you find out the interest rate is too high or the terms are not right for you.

4. Don’t buy more car than you can afford

Try sticking to cars in the lower price range if you don’t have room in your budget for higher-end models.

5. Don’t let anyone pressure you into making a decision quickly

Take all the time you need to make sure that this is a decision that works best for your financial future.

6. Don’t let yourself get “upside down” on your loan

Make sure the value of your car is higher than the amount you owe on it.

7. Don’t be tempted to extend the length of your loan

Shorter loans have lower interest rates you money in the long run.

8. Don’t ignore any red flags when it comes to financing a car

If something doesn’t feel right, walk away. You need to be 100% sure about the financial decision you’re about to make!

9. Don’t forget about other expenses such as insurance, registration fees, taxes, etc.

These all contribute to how much you’ll pay each month – don’t forget about them!

10. Don’t take out more loan than necessary

Only borrow what you need for the purchase.

11. Don’t refinance too often

Each time you do so, it can affect your credit score.

12. Never sign on an auto loan without fully understanding all the terms

Don’t miss a single detail – it might bite you later down the line.

Financing a car is an important decision and there are many things to consider. By following these do’s and don’ts, you can be sure that you’re making the best financial decision for your future. Happy shopping!

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