10 Common Car Loan Misconceptions

Posted by on November 28, 2019 @14:15:39 EST
The steering wheel and instruments of an old car.

We all get stressed when we’re trying to negotiate car loan deals, but that doesn’t mean that we all need to be misinformed as well. As it happens, there are plenty of commonly held misconceptions about car loans that have been driving customers crazy for decades upon decades. That’s why we decided to come up with a comprehensive list of 10 of the most common car loan misconceptions, in order to help you steer through the murk and figure out whether or not any given deal is actually going to be a workable solution for your situation.

1. The Rates of the Loan Aren’t Negotiable

This is a fairly easily-understood misconception, but it’s a misconception all the same. Wen people apply for car loans, they usually psych themselves up for the job so much that in the heat of the moment, it can be difficult to keep their head in the game. More often than not, this leads to blanket acceptance of the loan terms that are put in front of them on the table.

Even the most financially savvy among us can fall into this trap. The truth is, though, that the deal placed in front of you in the dealer’s office contains rates that are, at the end of the day, completely negotiable. You’re under no obligation to accept the rates that are presented exactly as they are. Don’t be afraid to discuss the rates with the person who’s helping you to get your car loan, and you also shouldn’t be afraid to consult with other dealerships to discover what kinds of rates are on offer in other parts of the industry.

2. Once the Loan Is Paid, It’s Time for a New Car

An old-fashioned alarm clock against a white background.

Plenty of people seem to think that by the time the loan is actually fully paid off, it’s time to upgrade the vehicle in question and start the whole process all over again. This manner of sinking is generally influenced by the fact that cars are depreciating assets; and while they most certainly are, that doesn’t mean you should automatically think about trading the vehicle in the minute you finally own the thing.

As a matter of fact, once you’ve got the loan paid off in full, it’s probably the worst time to buy a new car. You can finally enjoy your automobile without worrying about breaking down and paying an expensive mechanical bill on a car you don’t even own — why would you want to dive straight into another long-term financial commitment you’ll have to worry about every month?

3. The Monthly Amount is the Most Important Thing

This is pretty easy to understand, but that doesn’t mean it’s not a misconception. Because we know that we’ll be paying back the monthly amount every four weeks, it’s only natural to focus on that figure and assume it’s the bottom-line number when it comes to the car loan deal in its entirety. In reality, this isn’t correct, though.

The most important number you need to be thinking about its the value of the car itself, including the price of the vehicle and the total cost of the interest you’ll be paying on it. The monthly figure is important, no doubt, but focusing too much on the monthly amount means running the risk of blinkering yourself to what’s actually going on with the rest of the deal, creating a potential situation where you actually don’t know how much the car itself is worth. Don’t neglect the monthly payment, but don’t make it the only thing you consider, either.

4. The Lower the Downpayment, the Better

It’s perfectly reasonable to want to keep the downpayment figure as low as possible, especially if it’s your first time working on getting yourself a car loan. By reducing the lump sum as much has possible, you’ll be leaving yourself free to spend that extra money on other expenses, right? It makes total sense, until you think about it a little harder and realise it doesn’t actually make sense at all.

By increasing the amount you put down on the car, you’ll actually be doing yourself a massive financial favour in the long run. The downpayment and the monthly payment amounts are inversely proportional, meaning as one increases, the other decreases. Sure, you might not have the same amount of disposable income at your fingertips immediately, but after a few months you’ll be happy you made the correct decision once you realise how much leeway you have in your monthly budget. 

5. Dealer Trade-Ins Are Always Good Deals

An old car parked in front of a red brick building

If the dealer offers you what seems like a fantastic deal on a trade-in, be sure to stop and think carefully about it. Plenty of times the salespeople say that they’ll pay off the existing loan, which can sound too good to be true, often to the extent stat people accept the handshake without giving it another thought. The old adage says that if something seems too good to be true, though, it probably is, and in this case that’s usually right more than it’s wrong.

What’s more likely to happen is that the loan will just be added onto the new loan. This is usually accomplished with some clever paperwork trickery, but even though it sounds outrageous, it happens all the time. Be wise to this common ploy, and you’ll save yourself a major headache down the line.

6. There’s No Point in Refinancing Your Car

We’ve all been there — you finally secured the loan on your car, and now you more or less want to just forget about the whole thing and get to paying for it month by month. Car loans are so stressful for many people that they can develop serious mental blocks when it comes to the entire subject, which will often result in any potential refinancing being ruled out immediately.

If you can manage to overcome the distastefulness of beginning car loan negotiations all over again, you’ll be potentially saving yourself thousands upon thousands of dollars. Refinancing can be a great option, especially if the economy as a whole has undergone a major change in recent years. Even a couple percentage points on the interest rates you’re working with will go a long way towards helping things become more financially manageable, so whatever you do, don’t rule out refinancing offhand. 

7. If You Got Approved, You Can Afford It

This is a painful situation to occur, but unfortunately it happens all the time, all over the world. It’s human nature to assume that just because the lender approved you for the loan, you’ll actually be able to afford the vehicle. The regrettable truth is that people can be approved for loans they have no hope of paying off, and because they’re blinded by the trust they have in the paperwork, they’re often not able to see the forest for the trees. 

Checking and double-checking your own budget, expenditures, and general income is a good financial habit to get into, and it’s every bit as important when it comes to car loans as it is for other deals. Don’t take anybody else’s word for it that you’ll be able to pay off any given loan. In the end, you’re going to be the only one paying for it, and/or opinion on your own finances is the only one that matters.

8. You Can’t Negotiate a Deal Because You’re Not an Expert

We’ve lost count of the number of times we’ve heard people express exactly this to us in one way or another. People think (quite reasonably, we might add) that because they’re not financial wizards or hardcore salespeople, they haven’t a chance of negotiating any kind of deal with a learned professional. In reality, you don’t actually need to be a pro in order to negotiate at the same table with one; you just need to know your own situation, and you need to know what you’re buying. 

Before you step foot in the lot, do your due diligence when it comes to the model of car you’re trying to buy. And it goes without saying that you should know your own financial situation inside out. With these two wells of information at your disposal, you should be perfectly able to drive the price down a bit, purely because you know what you can and can’t afford. Don’t be afraid to fight fire with fire, either — it might just make a world of difference.

9. New Cars Will Save You Money

Part of what’s attractive about buying a new car is the fact that the interest rates are often lower than their used counterparts. While the figures can look very appealing indeed on paper, you need to be sure that you’re not overestimating the potential value a new car will be actually giving you. Of course, the bottom line price is going to be higher for a new car, but that’s not the main point either. 

The main concept you need to understand is one you’ve probably already heard about thirty thousand times. It’s so valuable that it’s worth repeating again, however, so here it is: cars are depreciating assets. That means that no matter what you do, they won’t gain in value over time. Even if the new car looks like a much better option, you should be aware that it’ll lose you money just like a used car will. Too often, people ignore this simple fact while they negotiate their car loans, leading to major financial problems down the line — not to mention plenty of crushing disappointment.

10. Just Because You Can Afford It, You Should Buy It

As a corollary to point number 7 above, this misconception has to do with the opposite side of the same coin. Even if you’ve been approved for a car and you know for a fact that you can afford it, that doesn’t mean you should automatically pull the trigger. You should only stick with the deal itself if the model will be able to do everything you need it to do. If it can’t, don’t be afraid to walk away and come back another day, or to try your luck at another lot. 

Plenty of car dealerships know full well that the people who come in to buy vehicles want to drive away as soon as possible with their new purchase. It’s human nature, after all, and it’s hardly a bad thing. However, this can in turn lead to dealerships implying that a given deal won’t be on the table in a week or so; and more often than not, that simply isn’t true. A car is a huge financial commitment, and there’s no rush whatsoever. It’s something you’ll be using for years to come, so make sure that you’re not buying it just because you can afford it.


Even though none of these points on their own are enough to prevent a good deal from going awry or a bad deal from coming to fruition, by reading through this list a few times you’ll hopefully be giving yourself the best shot at walking away with the car loan deal you need. The more information you have about any given decision, the better your chances are at making the right call, so don’t be afraid to peruse this list on the way to the dealership; it might just save you a lot of money and stress.

If you’re stressed because your poor credit score is preventing you from securing a car loan, why not get in touch with our experienced and friendly team here at Auto Loan Solutions? We consider every application we get equally, irrespective of credit score — and we just might be able to help you out with your own particular needs. 

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