Getting a Car Loan All You Need to Know
Thinking about taking a car loan? While this is a big step, it doesn't have to be a daunting task. Proper preparation before car shopping can increase your chances of securing a great deal on a car. In this article, we will breakdown 5 steps you need to know on how to get a car loan that fits your budget down to the final paperwork.
1. Check Your Credit
It is important that you, first of all, check your credit report and credit score before submitting a car loan application or visiting a dealership. The information gotten from your credit score and income is used to determine whether your loan application will be approved.
When potential lenders examine your credit history of borrowing, if it reveals that you are creditworthy, as your previously borrowed loans were repaid on time, they will likely grant your new car loan request with a lower interest rate, larger amount and even a longer term.
On the other hand, if your credit report is poor, you should take at least, the next 6 months in improving your credit before applying for a loan. Making payments on time can help bolster your credit history so you can qualify for a better auto loan.
Hence, the reason you need to carefully check and fix any errors or fraud on your credit report before applying for a car loan. To have a good idea of where you stand, you can examine your credit report from one or more of the major reporting bureaus (TransUnion, Equifax, and Experian) as federal laws allow you to at least one free copy of your credit report every 12 months.
2. Your Budget
Before you apply for a car loan, you need to ask yourself the following questions: how much can you comfortably afford to repay each month even if the bank says you can afford more? How much do you have for a down payment? What is your target on the length of repayment?
You should be able to figure out these questions before you go car shopping since they will help you determine how much you can spend, accounting for the down payment as well as the monthly payments. You can use a car loan calculator to design your down payment, monthly payment, insurance, taxes and corresponding loan terms that fit in your budget.
You must understand these terms and what they mean first to determine how you want to control your payments:
Down payment: This is an up-front payment or deposit that you make when purchasing your car or other assets. It is a portion of the total cost that you pay from your personal savings in cash, check or a credit card. The larger your down payment, the smaller your loan, and monthly payments.
Monthly payments: This is the regular specified amount a borrower is required to pay each month until a debt is paid off. Keeping this amount at a comfortable level is reasonable as unexpected events could affect your regular income. Unanticipated expenses could decrease your income. If you spend carelessly, jeopardize your future.
3. Shop Around Lenders
While many people consider it convenient to get their car loan financed at the same dealership where the car is purchased, you owe it to yourself to shop around for multiple lenders with the best rates and terms.
When you check out their offers, including that of traditional banks, credit unions, and online lenders, it gives you bargaining power as you have explored several available options. You can get a preapproved car loan, which means you’ll know the maximum amount you can borrow and at what terms. Auto loans pre-approvals are often made within 30 days.
To begin the loan pre-approval process, here’s is the information you need to know to be ready for:
- Have your information in order. Your lender will require documents that contain your date of birth, Social Security number and also a copy of your driver’s license.
- When you apply for auto loans, understand if it’s a hard inquiry on your credit report as most lenders use a hard credit inquiry, which can lower your credit score for one year.
- Shopping period is within 14 days. Car loan applications that involve hard credit inquiries should all be submitted within a 14-day period. Within this time frame, all auto loans inquiries are counted as one.
You can check this website to get the best interest rate on a car loan.
4. Visit the dealership
After picking a suitable loan, it’s now time to head to the dealership to see the car in person and then sort the color, trim level and other features of the car you desire. Moreover, when it comes to negotiating the sticker price or the MSRP (Manufacturer's Suggested Retail Price), it is better to arm yourself with the accurate knowledge before car shopping to increase your chances of getting a great deal on a car.
You can also try effective strategies, like shopping for the best deals during off hours. In addition, when you visit the dealership, be realistic and stick to your budget to avoid being enticed by attractive deals on shiny new cars that you cannot currently afford.
5. Append your signature
Most people would like to seal the deal at the dealership once the price has been agreed on and then take delivery of their car either at the dealership or at their home. But before appending your signature, make sure to review the sales contract to confirm there’s nothing like hidden fees. Lastly, you’ll start making monthly payments on your car loan. Paying on time will positively impact on your credit report.