When you’re ready to buy a used car or you’re shopping around for a new vehicle, you may be wondering how you’re going to cover the cost of that vehicle. Financing your purchase is an option for many, but you need to be aware of some common misconceptions and fallacies about getting a car loan. Below are four car financing myths you need to avoid:
#1: Financing a Car is the Same as Cash
When you don’t have the funds to pay for a car with cash upfront, a dealer financing offer may look incredibly appealing. Many dealerships will offer financing incentives such as “same as cash” offers for a promotional period where you don’t pay any interest for a certain period of time before the APR kicks in.
Why It’s a Myth: You’ll end up paying interest on the balance after the promotional period ends, so your total payment for the vehicle will likely be higher — often significantly higher — than if you paid with cash. Use Carvana’s auto loan calculator to determine whether paying cash will cost you less than financing a vehicle over the loan term. Review the loan terms carefully so you have a clear idea of how much interest you will pay for the purchase if you don’t pay off the balance in full before the end of the loan term.
#2: You Need to Make a Large Down Payment
Almost all financing programs require some type of upfront payment. This will lower your total principal amount and you might consider making a larger down payment if you end up qualifying for a high interest rate on the loan.
Why It’s a Myth: Some traditional, brick-and-mortar dealerships won’t require any money down and you only need to make a large down payment if it will lower your monthly payments significantly because of high interest. Run some calculations so you aren’t parting with money that you could use elsewhere.
#3: You Need a Perfect Credit Score to Get Approved
You’ve probably heard experts lauding the benefits of having a good credit score, highlighting the fact that you need a good credit score to qualify for a loan. However, many lenders will approve you for a loan even if you have a lower credit score.
Why It’s a Myth: According to Liberty Auto Loan, you can have less than perfect credit to get your auto loan approved. The difference between someone who qualifies for a loan with a high credit score versus a lower credit score is the high credit score applicant will get a more attractive interest rate. Both parties can get their loan approved, but the lower credit score applicant may end up paying more in interest over the course of their loan term.
#4: You Don’t Really Need to Shop Around
Car financing programs and auto loans are like products for traditional dealerships or lenders. They are competing to get you approved, which means they need to attract you with a great offer. Interest rates, down payment requirements, and other variables vary from lender to lender.
Why It’s a Myth: It pays to shop around and see your options so you get the best possible rate, but keep in mind that depending on where you submit a loan application, it could result in a hard inquiry on your credit. With Carvana, however, you can receive real, personalized financing terms that have no impact on your credit score, allowing you to shop for your next vehicle without restriction!