In the U.S., most people make expensive purchases like cars and large appliances with credit, or a loan, rather than cash. But not all loans are the same, and it’s important to understand the difference between them. Some loans are “predatory,” meaning they might have a very high interest rate, or the contract might include hidden costs. This can cost borrowers thousands more dollars over the life of the loan.

Fortunately, best practices can protect buyers from predatory lenders. Here are some tips to help buyers “Borrow Smart” for their next big purchase:

  • Always check your credit score via free services such as Knowing your credit score will give you an idea of whether or not you qualify for a large loan, such as for a car.
  • If your credit score is too low, work to improve it so you don’t risk having the bank “pull your credit” to check if you’re eligible for a loan. Every time a creditor “pulls your credit,” it lowers your credit score. Aim for a “good” credit score, usually 690 or higher, before applying for a loan.
  • Shop around! Contact multiple local banks or credit unions to compare interest rates and criteria. Carefully read the fine print in any contracts and ask questions.
  • Apply for a loan through a bank or credit union. Using a known or local financial institution presents multiple advantages. Many institutions will offer an interest rate that does not change during the life of the loan, thereby saving buyers money; auto loans through car dealerships sometimes have a variable interest rate and can be more expensive. Most car dealerships will be happy to accept a buyer with pre- approval from a local bank or credit union.
  • A car inspection before you buy will ensure that the car is safe and free of any major mechanical or cosmetic damages.
  • Purchase your car through a dealership. Buying a car from a private owner is a risk. Private owners rarely let you inspect the car before you buy it, and if the car has major issues, you can’t return it. If buying from a private owner, ask to bring the car for a test drive to a mechanic you trust. Do your own inspection before committing to the purchase.
  • Make sure you budget for fees associated with buying a car. Expenses include state inspection, insurance, maintenance, taxes, and winter tires. These expenses can significantly increase the initial price tag of the car. Being prepared for these extra expenses will help you choose a car you are able to afford.