Auto Loan Mistakes: 5 Common Pitfalls That Can Leave You Financially Struggling

However, if not well prepared, buying a car with a bank loan can quickly turn your dream car into a financial burden that weighs heavily on the owner for many years.

Here are some common mistakes that buyers often make when choosing an installment plan and how to avoid falling into the “borrow-and-pay” spiral.

Misunderstanding interest rates: “Fixed” or “Floating”?

Many customers, when signing a credit contract, only pay attention to the initial preferential interest rate, such as “6%/year”, without understanding that this rate only applies for a short period, usually from 6 to 12 months. After the 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 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 fuel, mandatory insurance, parking fees, maintenance, and asset depreciation. Altogether, these expenses can amount to around 5 – 8 million VND per month, excluding the installment payment.

Therefore, before buying a car, it is crucial to create a detailed financial plan for each month, including both the loan and car maintenance expenses, ensuring that the total expenditure does not exceed your financial capacity and that of your family.

Choosing an inappropriate 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 range from 4 to 6 years. Ensure that the monthly payment does not exceed 40% of your stable income to maintain financial flexibility.

Lack of negotiation with dealerships

Many customers only focus on dealing with the bank and forget that car dealerships 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 2 to 3 different dealerships to make the best financial decision.

Signing the loan contract without thoroughly reading the terms

Some people hastily sign the credit contract within a few minutes without paying attention to 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 miss a payment.

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

Installment plans are financial tools, not debt traps, if 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 when car prices are high, and average incomes lag. However, like any loan, it requires careful management.

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

TH (Tuoitrethudo)