Fast 5: Common Car Buying Mistakes

Fast 5: Common Car-Buying Mistakes

Fast 5 is a series highlighting five fun or interesting facts about a variety of topics. After our last edition, “Fast 5: The Best Time to Buy or Lease,” readers wanted to know about common auto financing mistakes — and how to avoid them. Here are five mistakes to watch out for.

1. Not knowing your credit score.
   There’s good reason we write about credit scores often: It’s one of the main factors auto finance companies look at when considering you for financing. Credit score tiers are used to determine credit qualification and interest. Ranging from A+ to F credit tier, the higher your credit score, the better your credit tier. Typically, a high credit score qualifies one for a better, lower interest rate than a low score does. Are you a well-qualified buyer?
2. Not comparing finance offers.
   All too often, buyers will research multiple models, trim levels and dealerships, but not give the financing enough thought. Before visiting the dealership, shop around for several financing quotes. Doing so can give you an idea of the interest rates available or how much you may be able to get financing for. At GM Financial, you can even apply to prequalify ahead of time, making your experience smoother at the dealership.
3. Hyper-focusing on monthly payments.
   While your monthly payment is an important piece of knowing how much car you can afford, making it your primary focus may end up costing you more. When you focus on the monthly payment instead of the total price, you may end up with long-term auto financing and potentially pay more in the long run.
4. Not considering the “total” cost.
   This one is a bit personal. Over a decade ago when my wife and I got a new car, we were shocked at how much our auto insurance increased. When we were budgeting how much car we could afford, we hadn’t considered such an obvious element. Total cost of ownership includes fuel, registration fees, taxes, insurance and more. With proper preparation, it’ll be a mistake we only had to learn from once in our lives.
5. Rolling too much negative equity forward.
   Negative equity occurs when the value of an asset falls below the amount owed on it. For example, the value of a vehicle falls below the amount owed in a retail agreement. Financially, it may make sense for you to trade in a vehicle you haven’t finished paying off. Transferring negative equity into a new vehicle is often referred to as rolling over the loan. It’s important to understand what that means:
   
   • Your old loan isn’t forgotten but added to your new financing agreement.
   • It can be offset if the dealership purchases your old vehicle or accepts a trade-in.

Whenever possible, completely pay off your old vehicle before buying a new one. Otherwise, you may create a larger financing amount with more interest.

Now that you know what to look for, you’ll be well prepared when considering auto financing. Of course, there are always more questions. Check out “A Step-by-Step Guide to Auto Financing” to learn more.

By Josh Foster, GM Financial

Josh Foster takes pride in his three orange cats and the ability to connect people with meaningful experiences. He’s a U.S. Army veteran and volunteers at the Detroit Zoo, where he’s able to educate guests with bad jokes about good animals.