How To Avoid Common Mistakes With Car Loans
There’s nothing quite like the feeling of owning a car. These machines are a prime example of what we’re capable of building and that in itself is incredibly manly. Imagine driving across the country with the top down and the sun in your face, a feeling of utter freedom as you feel the engine vibrations intensify with every bit of pressure you add to the accelerator pedal.
Then there are the less exciting parts about owning a car. There are things like car maintenance, taxes, traffic laws, and depending on how you acquired your car, you might even have to worry about paying off a loan. Neglecting any of these things can cost you your car. But nothing hurts more than losing a perfectly good car. That’s the result when you’re unable to pay off your auto title loan.
The allure of auto title loans is that they are essentially quick cash, and lenders don’t even check your credit history. However, the catch is that auto title loans often have higher interest rates and (repeating for emphasis) if you default on your payments, you’re going to lose your car to the lender.
So, how exactly do you avoid that?
Borrowing More Than You Need
When you have multiple cars, it can be tempting to use the most expensive car for your auto title loan so that you’re able to borrow more money. In this instance, more money isn’t necessarily better. Because auto title loans have higher interest rates, the bigger the amount, the more difficult it’s going to be to pay off the loan. You could end up losing your most valuable vehicle.
Choosing The Wrong Private Lender
As with any transaction, you need to be able to research who you’re transacting with. You need to ensure that you’re transacting with licensed title lenders, and that they must be stable and they should have good ratings with the Better Business Bureau. They should also have good rates. This company that provides auto title loans in Bakersfield is a good example of a reliable private lender.
Not Reading The Fine Print
This should be common practice with any document that you need to sign, but unfortunately too many people simply skim over the fine print. The problem here is that this is where the most important details are found: when you should pay, how much you should pay, and for how long should you regularly pay the amount.
Renewing The Contract
Many guides will say that if you’re unable to make payments on time, you may simply renegotiate your contract as opposed to relinquishing your car. While it’s true that this is the lesser of two evils, you shouldn’t bank on it because it merely delays the problem rather than solves it. Defaulting on a payment is a situation that you should avoid at all costs. If your plan is to renew your contract, you might as well not apply for a title loan at all.
Not Understanding Balloon Payments
When I was shopping for my first car that was truly "mine", the sales guy asked how much I could afford. He wasn't asking for the total price of the vehicle but instead, how much I wanted to pay per month. He told me that pretty much anything on the lot I could have and they could make the monthly payments fit any budget. That was true ... sorta. By looking only at the monthly payment it puts a lot of pressure on both the down payment and the final payment. That final payment also known as a balloon payment can be a shock forcing you to re-finance or pay a huge amount at the end. There's nothing sinister about that ... as long as you know what to expect ahead of time!
Not Calculating the Total Amount That The Loan Payments Will Be
In any loan situation, you know that the total payments will be more than the amount actually borrowed. Interest and other fees can add up significantly. However, before pulling the trigger on your new car loan, make sure to take a look at the principle and also the total cost of all associated interest and required fees over the course of the loan. While this shouldn't be a deal killer, it is important that while paying it off you consider the payments for what they are and not simply looking at your car as "$300 per month".
While this may not help you save money on the current agreement - except maybe by paying it off early - it will be a good reminder for future loans. Better credit history can save you hundreds or even thousands of dollars so treat this one as a stepping stone to something better in the future!
- Written by James Hills
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