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For those who are looking to get a car in the near future, you are likely going to need a loan unless if you expect to pay in cash outright for the car, which is not something that many people can afford to do in our current economy.

While paying in cash could provide you with a substantial cash discount, we would like to provide you with three things that you should consider before you go out and get a car loan.

1. Do you Plan to Dealer-Finance or Direct Finance?

The Federal Trade Commission (FTC) has a fantastic guide about the differences present between dealer financing and direct financing. If you are unfamiliar with what these two terms mean, please feel free to peruse the link for more information.

In terms of pros and cons, direct financing may be the better route to go unless if the dealer can offer you an incredible deal or promotional offer. Nonetheless, shopping the direct financing market can serve to give you a better idea of what the true value of the car is, as well as how much you should be paying for it in interest based on your credit resume if you choose to finance.

2. Avoid “Yo-Yo” Financing

Coming from an article in Time, it is arguable that Yo-Yo Financing, as it is called, is one of the greatest scams of the auto industry.

Basically, a car sales location will offer to finance the car for an individual in a fashion that will let that individual drive the car off the lot immediately. However, they will say that they will have to verify the financing agreement and details before it will be finalized.

Then, a car sales place will call the customer weeks later saying that the financing offer wouldn’t go through the system, so the customer will have to pay a much greater interest rate or down payment in order to keep the car. This can be avoided by not driving the car off of the lot until the financing agreement is finalized.

3. Know the Impact that Financing Will Have on your Credit

While having the ability to shop around for better loans at multiple banks is great, please don’t forget the impact that having multiple hard pulls on your credit score can have.

Having more than two credit pulls in the space of a year can hurt your score by a couple of points, and having many more than that can be detrimental to your score. So, please maintain conscientiousness about hard pulls of your credit while shopping loan rates.

By taking all of these steps, you will be in a much better spot for making decisions regarding car financing. We hope that this article has served to give you greater direction about some of the pitfalls present with auto financing deals.