An SUV or a mini truck is a big vehicle. That said, the cost of securing a loan for one is extensive. From paperwork to submitting income proof, the process can get to you, especially if you’re buying an SUV for the first time. After all, you wouldn’t want the loan application rejected in the final stage because of an incomplete document or a discrepancy, would you? So here are four mistakes that you must avoid while applying for a loan to purchase an SUV.
Not Saving for a Down Payment
Even if you have the required income, a lender generally will only finance up to 80% of the SUV’s value. So you’ll typically have to arrange for the 20% down payment yourself.
If you haven’t thought about it, follow these tips to save for your down payment:
- Start early: The sooner you start saving, the better.
- Create a budget: Once you know how much you need to save, make a budget and see where you can cut back on your expenses. This will help you save more efficiently.
- Open a separate account: Open a savings account specifically for your down payment. This will help you keep track of your progress and not spend the money on other things. Consider approaching a credit union that offers car loans and savings accounts and link the two accounts.
Having a Poor Credit Rating
A good credit score means you’re a low-risk borrower, making your loan more likely to be approved. On the other hand, a bad credit score indicates you’re a high-risk borrower, making it more difficult to get approved.
Your credit history determines your credit score, recording your past borrowing and repayment behavior. The higher your score, the better your credit history.
If you have a poor credit score, here’s how you can improve it:
- Pay your bills on time: Timely bill payments will increase your credibility, translating to a better credit score. Remember, the sooner, the better!
- Keep your balances low: Use no more than 30% of your credit limit. This shows lenders that you’re using your credit responsibly and decreases your debt-to-credit ratio, a factor in your credit score.
- Avoid opening new accounts: Your credit score takes a hit every time you open a new account.
Not Shopping Around for the Best Rate
Car loan rates can vary significantly from one lender to another. So it’s important to shop around and compare rates before settling on a loan.
Here are some tips for finding the best car loan rate:
- Check your credit score: As mentioned earlier, a good credit score means you’re a low-risk borrower, making you more likely to get a lower interest rate.
- Compare rates: Once you know your credit score, compare rates from different lenders. You can use an online tool like Credible to compare rates in minutes.
- Make a large down payment: A larger down payment means you’ll have to borrow less money, making it more likely to get a lower interest rate.
Not Reading the Fine Print
When you’re borrowing money, it’s important to read the fine print carefully before signing any documents. This way, you’ll know exactly what you’re agreeing to, and you won’t be surprised by any hidden fees or charges.
Taking out an auto loan is a big financial decision, so it’s important to do your research and avoid making mistakes. By following the tips in this article, you can be sure you’re getting the best deal on your loan, and you’ll be one step closer to driving home in your new SUV.