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How to Get a Bad Auto Loan

Auto Loan Pitfalls

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Getting an auto loan is a confusing and intimidating process. To get the best auto loan, you need to avoid mistakes. This page covers some of the easiest and most costly mistakes that you should avoid when shopping for an auto loan.

1. Focus on the Monthly Payment

It's good to know your monthly budget. It's a bad idea to shop for your auto loan based on the monthly payment alone. There are several ingredients to a loan, and all can be manipulated to make the monthly payment appear low. Meanwhile, you're still getting a bum deal. Negotiate the purchase price first, then figure out the financing later.

2. Stretch Out the Payments

Along the lines of #1, a longer auto loan term can keep monthly payments low. However, you'll pay more in interest over time. It also takes longer to eliminate the auto loan, which could last longer than your affection for the car. Sometimes you end up owing more on the car than it's worth if you go for long loan terms (called "upside-down" auto loans). Keep the term to 5 years or less.

3. Avoid Shopping Around

You can get your auto loan from a number of places. Don't just take what the dealer offers, although the dealer may have a competitive deal. Check with local credit unions for auto loan deals, ask your banker, and see if peer to peer lending is a good choice. You can save thousands in interest costs by getting your auto loan from the best place.

4. Ignore Your Credit

Your credit will affect your ability to lease a car or get an auto loan. If it's bad enough, you'll get turned away. If it's just OK, you'll probably pay more than you have to. If you've got excellent credit, you will have more options available and you'll pay less in interest. Make sure you keep your credit in good shape.

If your credit improves just after you buy a car (because you've fixed errors in your credit reports, for example) you can certainly refinance as soon as your scores rise.
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