5 Costly Car Loan Mistakes to Steer Clear Of

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1. Borrowing More Than You Can Afford

It’s easy to fall in love with that shiny new car smell, but not so fun when the payments feel like a second rent.

Borrowing too much stretches your budget thin and keeps you broke longer.

• Stick to a rule: your car payment shouldn’t be more than 10–15% of your take-home pay.
  
• Include total costs like insurance, maintenance, and gas before saying yes.
  
• Be honest with yourself. If it makes you sweat to think about the payment, it’s too much.
  

👉 Here's How You'll Do It: Check your monthly take-home income and use a calculator to see what 10% looks like before shopping.

Make It Easy: Use a budget planner notebook to map out your car payment alongside your regular bills.

2. Only Looking at Monthly Payments

Dealers love it when you say, “I just want a low monthly payment.”

Because they’ll stretch your loan for years and charge you more in interest.

• Don’t fall for smaller payments that last forever. Longer terms mean more money wasted.
  
• Focus on total loan cost, not just what comes out of your account each month.
  
• Pay attention to the loan term. 36 or 48 months beats 72 any day.
  

👉 Here's How You'll Do It: Before signing anything, multiply your monthly payment by the number of months. That’s your real price tag.

3. Not Checking the Interest Rate First

Your interest rate decides whether you’re saving smart or throwing money away.

And trust me, lenders won’t tell you upfront if you don’t ask.

• Always check your credit score before applying. It affects your rate directly.
  
• Shop around for lenders, not just the dealership, for the best rates.
  
• Avoid subprime rates unless you’re rebuilding credit and have no other choice.
  

👉 Here's How You'll Do It: Get a free credit check, then contact at least two lenders to see who offers the best rate.

Make It Easy: Use Credit Karma to monitor your score and spot better loan opportunities.

4. Skipping the Down Payment

If you skip the down payment, you’re instantly upside-down on your loan the moment you drive off the lot.

That’s finance-speak for “you owe more than your car is worth.”

• Aim for at least 10–20% to lower your total loan balance.
  
• Use savings or tax refunds to cover the upfront amount.
  
• Remember: more down = less interest and smaller payments.
  

👉 Here's How You'll Do It: Save a little each month in a separate account until you hit your target down payment.

Make It Easy: Open a Betterment Cash Reserve Account to automate and grow a car fund for down payment and emergencies safely.

5. Taking the First Loan Offer You Get

Taking the first offer is like marrying the first person who compliments your shoes.

You might get lucky. But chances are, you’ll regret it later.

• Always compare offers from banks, credit unions, and online lenders.
  
• Use pre-approval letters to negotiate better rates.
  
• Don’t rush the process. A little patience can save you thousands.
  

👉 Here's How You'll Do It: Collect at least three loan quotes before signing and pick the one with the lowest total cost, not just the rate.

Make It Easy: Use LendingTree to find and compare competitive car loan deals in minutes.

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