back to articles | October 07, 2022 | Dale Peterson

Categories: Tips & Insights For Car Buying Auto Loans & Financing

5 Car Loan Mistakes that Cost you Money

If you would really like to save some money on the next auto you purchase, you will have to put in some effort. Striking a good deal by bargaining with the salesperson on the sticker price is not going to cut it.


If you would really like to save some money on the next auto you purchase, you will have to put in some effort. Striking a good deal by bargaining with the salesperson on the sticker price is not going to cut it.

If you make a mistake on the auto loan, it could actually cost you some extra bucks and erase any of the savings you negotiated on the purchase price of the car.

The biggest mistakes are usually made in the financing office of the dealer. If you can make good decisions, you can save thousands over the term of the auto loan.

Here are some areas of importance that you need to be aware of.

Negotiating the Monthly Payment instead of the Purchase Price

Buying a car based on the amount of monthly payment is a trap you want to avoid. You should know what you can afford each month and do not provide that figure to the salesman. If happen to slip up and tell them, you will give up your ability to negotiate a lower purchase price. Make sure you never get turned into a “monthly payment” buyer. Once you provide that information, a monthly car loan amount tells the dealer how much room is available to hide other costs such as higher interest rates and add-ons. Negotiate the price of each cost category separately. You need to minimize the individual pieces of the negotiation – price, trade-in, and auto financing.

Cash Rebate vs. Low-Interest Loan

If you want to take advantage of a manufacturer’s offer of a cash rebate or a low-interest loan, do your homework before deciding on which offer to take. You need to be very cautious of the method that will net you the greatest savings, as they can vary from offer to offer.

Use the calculator to simplify the comparison. You have to have almost perfect credit to get a low-interest rate, and this just isn’t available for the large majority of consumers. It’s helpful to know what your credit score is, so you need to make an effort to get a free credit score for yourself. This will help you when it’s time to sit down with the finance manager at the dealership.

Having your Creditworthiness Defined by the Dealer

This should not happen! Your creditworthiness will determine your auto loan financing interest rate. Credit scores range from 300 to 850, with 850 being the top of the range. Three credit reporting agencies provide a free credit report for the asking. Equifax, Experian, and TransUnion all offer free credit reports.

A borrower with a high credit score will qualify for the best rates available, but it’s always good to check and compare. One good online site provides you with up to four loan offers from national financing companies and banks with no fees or hidden charges to the borrower. Check out for more information. By comparing competitive rates, if you can shave off (1) one percentage point of interest from a $16,000 auto loan for 60 months, you can save hundreds of dollars in interest paid over the life of the loan.

It's not uncommon for most people to think that their credit score is worse than it is. The best way to make sure you are getting the best loan rate and the lowest payment per month is to use to get up to four car loan offers and compare them without any obligation to accept. This gives you incredible CHOICE and empowers you when working to purchase your new car. You can find out how much you can afford to spend if you use the interest rate calculator or the payment calculator – it’s easy and is a smart move on your part.

Financing Add-On Products

You may not realize this, but dealer profitability is increased by financing any add-on products that you may obtain. NADA data says that the new vehicle department of a car dealership accounts for about 58% of a dealership’s total sales but less than 26% of a dealership’s total gross profit. This represents those added-on products like insurance sold on new cars.

That means gap insurance, alarm systems, and extended warranties are adding costs and increasing what you pay when you add them to your loan. You decide if that’s really what you want to do. Even if you want credit life insurance, fabric protection, paint sealant, or an extended warranty, these products are available at a lower cost from sources outside the dealership. You need to question every fee you don’t understand that is on your contract or you are going to pay more than you need to. The best advice is to just say “no.” Dealers can write other fees into the contract and give them official-sounding names. These fees are another attempt to take profit on the back end of the deal when the buyer's guard is down.

Upside Down Equity

This is the term used to describe owning more on your car than it is worth. Yes, it happens so don’t panic. This difference is called “negative equity.” When a dealer shares this with a consumer and says that he can easily fold it into the purchase price of your new car, beware. Don’t roll it into the purchase price! You will be paying interest on the negative equity for the term of your new car loan. If you were upside down on your last car loan, chances are you will be that much more upside down on this car loan. You must know that this should be avoided at all costs (no pun intended). You need to live within your means and reassess your financial ability to buy a car that you can afford. Yes, you may have to sacrifice make and model, but it’s time to get back on a good footing with your car loan payments and your financial health.

Good luck and start being a smarter buyer today!