Auto Loan Mistakes: 5 Common Pitfalls to Avoid

However, without careful preparation, buying a car with a bank loan can quickly turn your dream car into a financial burden that weighs on the owner for many years.

Here are some common mistakes that buyers often make when choosing an installment option and how to avoid falling into a long-term “borrow-and-pay” cycle.

Misunderstanding Interest Rates: Fixed or Floating?

Many customers, when signing a credit contract, only pay attention to the initial promotional interest rate, such as “6%/year,” without realizing that this rate only applies for a short period, usually from 6 to 12 months. After this promotional period, the bank will apply a floating interest rate, adjusted according to market fluctuations, typically ranging from 10% to 13%/year. This change can cause a sudden increase in monthly payments, catching many off guard.

The solution is to ask the bank to provide the interest calculation formula after the promotional period and predict the difference compared to the current rate before signing the loan contract.

Considering Only the Car’s Purchase Price, Neglecting Monthly Operating Costs

Another common mistake is focusing solely on the amount needed to get the car on the road without anticipating periodic operating costs. In reality, car owners need to budget for monthly fuel, mandatory insurance, parking fees, maintenance, and depreciation. Altogether, these expenses can amount to around 5 to 8 million VND per month, excluding the installment payment.

Therefore, before buying a car, create a detailed financial plan for each month, including both the loan amount and maintenance costs, ensuring that total expenses do not exceed your financial capacity and that of your family.

Choosing an Unsuitable Loan Term

Some people opt for a short loan term (2 – 3 years) with the desire to “get it over with quickly,” but this comes with immense monthly repayment pressure. In contrast, those who choose a long-term loan (7 – 8 years) have more manageable monthly payments but end up paying significantly higher total interest. Meanwhile, the car’s value continuously depreciates over time.

Hence, the ideal loan term should be between 4 and 6 years. Ensure that your monthly payments do not exceed 40% of your stable income to maintain financial flexibility.

Not Negotiating Thoroughly with Dealers

Many customers only focus on dealing with the bank and forget that car dealers can offer valuable incentives such as registration fee support, free car insurance, or even interest rate subsidies. Not negotiating thoroughly from the outset means missing out on saving tens of millions of dong.

Therefore, buyers should proactively inquire about the available incentives for car loan customers. It is advisable to consult and compare at least two to three different dealers to make the best financial decision.

Signing the Loan Contract Without Reading the Fine Print

Some people hastily sign the credit contract within a few minutes without noticing essential clauses such as early repayment penalties, credit insurance fees, repayment schedules, or incidental charges. As a result, they may end up paying hefty fines when trying to settle the loan early or incur high fees and damage their credit history if they default.

Buyers should take the time to read and understand each clause in the contract. If necessary, seek advice from an experienced person or a financial advisor before signing.

Installments Are a Financial Tool, Not a Debt Trap, When Managed Wisely

Buying a car on installment is not a bad decision; in fact, it can be a smart solution to own a vehicle earlier, especially given the high car prices and average incomes catching up. However, like any loan, it needs to be carefully managed.

Consumers should take the initiative to research thoroughly, create a reasonable financial plan, and, most importantly, read and understand all the terms before signing the contract. Only by controlling the debt can the car truly serve its purpose of enhancing your life, rather than becoming a source of stress each time a payment is due.

TH (Tuoitrethudo)