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Six car finance mistakes to avoid.

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Buying a car, new or used, is a big decision. You might be tempted to rush in without considering potential pitfalls that come with the purchase. Here are five mistakes to avoid when you’re shopping for a car loan.

1. Not getting a competitive Interest Rate

The interest rate is normally expressed as a percentage for a one-year period and known as the annual percentage rate (APR). In New Zealand often the lender’s base rate is much higher, so avoid any loans over 9.50%.

2. Not asking the right questions

You might not be getting all the information you need to make the right decision, so it pays to ask the right questions, such as; Are there early exit fees if I decide to sell my car before the end of term? Or what insurance/warranty products are available to protect my car?

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3. Not understanding balloon payments

This is a common mistake most people make as the repayments seem lower. Often the balloon (or residual) payment which is a payment due at the end of the loan term can be much higher than expected and can put you in severe financial straits.

4. The 0% or 1% finance trap

It’s easy to fall into if you aren’t prepared. Although a dealership may offer this low interest rate, they will certainly make up their money elsewhere; whether it be through unnecessary accessories, unfavorable loan terms or high repayments. If a deal seems too good to be true, that’s generally because it is.

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5. Adding car finance to your mortgage

It’s easy to fall into if you aren’t prepared. Although a dealership may offer this low interest rate, they will certainly make up their money elsewhere; whether it be through unnecessary accessories, unfavorable loan terms or high repayments. If a deal seems too good to be true, that’s generally because it is.

6. Have your finance in place before your search

You can often get the best deal on a loan by getting preapproved for a loan with online lenders. You should do this before you start shopping for a car because you’ll get a better idea of how much you’ll be approved for and the rates available to you. Often, this process will only require a soft credit inquiry and won’t impact your credit score.

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