If you need a reliable car to get to work or drive your kids to school, don’t let fear of being denied a loan keep you from trying to find a better ride. Here, we’re debunking five common misconceptions about car loans to give you the confidence to start shopping for a better car.
Misconception #1: You Have To Have Perfect Credit To Get a Car Loan
If your credit report has a few hiccups in it and your score is less than you’d like, you may still qualify for an auto loan. Some lenders will rely on a more complete picture of your finances than just your credit score. A reliable work history, recent pay stubs, and other evidence of your ability to be financially responsible may help you finance a car you need.
Misconception #2: You Have To Take a Loan From a Dealer
When you need a car loan, be sure to shop around. Credit unions and community banks might be able to provide you with better terms than an auto dealer.
Misconception #3: The Monthly Payment Is All That Matters
This is one of the five biggest common misconceptions about car loans. An affordable monthly payment is obviously important: if you’re approved for a loan, you certainly don’t want to fall behind on your payments. But choosing a loan solely based on a low monthly payment can be a mistake. A lower payment will require a longer term to pay off the loan, and a longer term means you’ll be paying more interest over time. That means the total cost of the car you’re buying will end up being far more in the end.
Misconception #4: Once You Have a Car Loan, You’re Stuck With It
You can refinance a bad auto loan! If you accepted a loan on terms that turned out to be unfavorable to you, explore options to refinance the loan at a lower interest rate or for a shorter term.
Misconception #5: Getting Turned Down Once Means You Can’t Get a Loan Anywhere Else
Different lenders have different criteria for loan approval. This means that even if one lender says no, another may say yes. Applying for multiple auto loans can have an effect on your credit score, so it’s wise to do your research and identify two or three lenders to approach based on what they say about their requirements for loan approval.
We hope that debunking these five common misconceptions about car loans will reassure you about applying for an auto loan. Here’s one more myth: no, you won’t get a better deal on a rainy day, unless a lender or car dealership is running a promotion. But beware of scams: read the fine print and pin down the term, interest rate, monthly payment, and hidden fees.