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Transcript: 5 car loan mistakes that cost you money

Watch video: 5 car loan mistakes that cost you money

Do you think you know how to talk down the car dealership? You might think so but there are some easily made mistakes that can cost you thousands of dollars IF you don't do your homework.

After you've picked out your new car, it's easy to get excited. However, before you step foot in the financing office you need to consider what's going to save you the most money.

Let's start with negotiating the price of the car. First off, don't provide the salesman with what you can afford monthly. Instead, turn the screws by negotiating a lower purchase price. If you volunteer a monthly car loan amount, then the dealer knows how much room is available to hide costs associated with interest and add-ons.

Furthermore, negotiate the price of your trade-in, the cost of the new car and the terms of the financing individually.

Before even shopping for a car, get an idea of what your credit worthiness is. The higher your credit score, the better car loan rate you'll get. Shaving just one percentage point off the interest rate can save you hundreds of dollars over the life of the loan.

If you have the option to take a rebate, or a lower interest rate on your loan, take your time and do the math before deciding. The method netting you the most savings varies from offer to offer.

Calculator shown: Special dealer financing calculator

Next, you need to be very cautious about rolling negative equity on your vehicle forward into your new loan. Many dealers offer this as a way to pay off your previous vehicle, but rolling that debt into a new loan only puts you further behind the 8-ball.

Buying more car than you can afford/Living outside your means

Finally, add-ons such as fabric protection, warranties, and paint sealant should be purchased outside the dealership, the prices will be lower and you won't be tempted to roll them into your loan, thereby increasing your monthly payments.

Follow these tips and you'll wind up getting the best interest rate and saving thousands on the cost of your car. For more money saving auto tips, visit the auto tab at Bankrate.com.

 

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