Most people, when purchasing a new auto, end up borrowing at least part of the money from a bank, credit union, or other financial institution. For some, this process can be filled with mystery and uncertainty. In some cases, a lack of knowledge about the auto loan process can even result in a choice to put off purchasing a new vehicle altogether.
Here are some common myths about auto loans. By understanding the truth about auto loans, you will be empowered to purchase the best vehicle for your situation, on terms that you are comfortable with.
1. The Cost of a Loan is Too High to Pursue One
Many people believe that, by the time they pay off the loan, they will have paid so much in interest and fees that the whole thing will not be worth it. Nothing could be further from the truth!
While it is true that you will pay for a loan—after all, the bank or lending institution has to show some return on the money it allows you to use—the truth is that the cost of a loan is not usually going to be very high. This is especially true now that the Internet has allowed consumers to shop around for loans: the more lenders you have access to, the better your chances of landing a great deal on a loan.
2. I Am Limited to Local Lenders
It used to be that getting a loan meant you went to the local bank (or credit union) and talked to someone about your credit. Your options were pretty much limited to those financial institutions within a reasonable distance of where you lived. This limited selection also meant that you would likely pay more for your loan—less competition for your business meant that lenders could charge more.
With today’s technology, this is not the case. With just a few minutes on the Internet, you can apply for loans from lenders across the country. This means more options for you, and a better lending experience overall. And of course, increased competition for your business means you are going to see more favorable loan terms.
3. I Won’t Ever Qualify
It used to be a bit of a challenge to get a good loan unless you already had stellar credit. Today, this is not necessarily the case. While having great credit is always better than having poor credit, the reality of the situation is that the larger number of potential lenders (all vying for your business) means that more lenders will be willing to offer you credit than ever before.
Don’t let a non-existent (or poor) credit history stop you from applying. You will be surprised at how many options you have.
4. No Lenders Want My Business
This myth is similar to the one above. Perhaps you have had a rough patch over the last few years, and your credit score is not as stellar as you would like it to be. Or, perhaps you have never borrowed before, and you feel like you don’t have the necessary track record to be attractive to lenders.
Keep in mind that with lending aggregate sites, you can fill out a single loan application and submit it to thousands of lenders across the country. With these kinds of numbers, it is pretty much a given that you’ll find a bank or other financial institution that is willing (and even wanting) to do business with you. So, give it a try, and see what kind of results you get!
5. I Have to Pay Extra Each Month
Some consumers feel that it is a must that they pay off their loan early. Whether this is due to a common misconception about how credit works, or just a desire to be debt-free, this is a myth that must be addressed.
While it’s usually a good thing to pay off your loan early, it won’t hurt your credit to stick to the terms of the loan. Lenders want to see that you are responsible, and making your payments on time shows just that. Paying off a loan early may give you some additional peace of mind, but taking the full term of the loan can actually help you build your credit score.
Even if you do decide to pay off the loan early, there’s nothing wrong with taking a few years (as opposed to the full term of the loan) to get it done. You’ll show lenders that you are capable of managing your finances on an ongoing basis, and you’ll find that your credit score goes up as a result.
6. My Credit Score Will Take a Long Time to Fix
If you have suffered some damage to your credit—such as by making a few payments late, or even defaulting on a loan—you may be of the opinion that it is going to take you too long to get things rolling again. The truth of the matter is, repairing your credit can be done much more quickly than you may believe.
Lenders understand that life happens sometimes, so a few late payments won’t really damage your score all that much, so long as they have been preceded and followed by several on time payments. And, as the saying goes, “A journey of a thousand miles begins with a single step.” So don’t put off repairing your credit, as you’ll have to start some time.
Don’t Let Credit Myths Dissuade You from Applying
Long story short, getting credit is not nearly as difficult as many people may believe. There are thousands and thousands of lenders out there looking for consumers with whom they may do business. And, with today’s technology, it’s easy to apply.
And, once you have a loan, you don’t have to put nearly as much time and effort into paying down the loan as you may have thought. Just make your regular payments, one month at a time, and watch your credit score rise.