Have You Been Costing Yourself Thousands Through Incorrect Financing?

Financial

Regardless of whether people are financing a car, a mortgage, or a student loan, securing the best financing makes the difference between a good deal for the consumer and one that is advantageous to the lender. Often, people consider the amount of the monthly payment as the determining factor in accepting a financing deal. Other considerations are length of financing term, interest rates, and credit score. Consumers can pay exorbitantly more than they realize when they are not smart about the financing game. Asking others for advice is always a good idea before entering into any contract in which payment has to be made over a period of time. In addition, care should be taken when making extra principal payments. Lenders generally will not apply it against the original principal unless borrowers explicitly request it. Make certain there are no prepayment penalties in any deal you make.

How Does Financing Work?

Financing any purchase is generally done through a credit union, bank, or, in the case of a car, the dealership. How much the buyer actually pays for the item depends on the terms of the financing. It is always a good idea to have financing in place before approaching the seller. This gives the buyer the opportunity to compare different interest rates to determine the best option. The actual cost that is stated is seldom the price the consumer will actually pay. Financing costs money, and knowing what he or she can afford to pay requires a thorough understanding of the budget, income, and terms. Generally, the buyer makes a down payment, and the remainder is amortized over a period of time. This is usually three to six years for a car, 10 or more years for a student loan, and 15, 20 or 30 years for a mortgage. One caveat when applying for a mortgage is to avoid making any rash changes in finances; that is the quickest way end a deal.

Tips for Getting a Good Financing Rate

Getting the best possible interest rate is a critical factor in any financed purchase. Shopping responsibly is the soundest safeguard against being fleeced in financing a purchase. Some of the best ways of securing a good rate are:

  • Shop around before approaching a seller.
  • Look at the total amount of the loan, and do not be guided by the monthly payment alone.
  • Know be best rate available for your credit score.
  • Be aware of how the loan payment fits into the budget.
  • Do not buy more than you can comfortably afford.
  • If the loan is a student loan, always apply for the Pell Grant. No repayment is required.
  • Do not allow the lender to think they have no other choice for financing.
  • Take time and read the contract before signing.
  • Ask questions.
  • Research information about the lender to ensure that he is legitimate.
  • Choose the shortest term for the loan.

Common Mistakes Made When Applying for Financing

Some of the most common mistakes people make are easily rectified. It takes a little searching, but it will keep consumers from making mistakes that could cost thousands of dollars over the term of the loan. Some of the most egregious errors are:

  • Not searching around for the best lender
  • Not having updated financial information available
  • Not reading the contract judiciously before signing
  • Not checking all three credit reporting agencies for an updated credit report
  • Lying on the application
  • Not knowing the various options available
  • Borrowing more than they can afford
  • Not making a down payment
  • Not negotiating for the best deal all around
  • Focusing on the item or product rather than the loan
  • Not comparing prices
  • Not considering the monthly payment in light of the budget
  • Being so enthralled with the purchase that they cannot walk away
  • Not acting professionally

Consumers should not feel obligated to remain with the original lender. If a better deal comes along, and it is to their benefit to change, they should do so. They may be able to refinance without any out-of-pocket money and make a better deal for themselves. If another bank or Credit Union is anxious for their business, they may be willing to do whatever it takes to have them as a customer, especially if they have high credit scores.