A Guide on Getting a Car Loan
An auto loan will fund a purchase, letting you make monthly payments with interest over a stipulated period. Here is how to get a car loan in 6 simple steps.
Securing an auto loan is an easy process, especially if you compare it to the tedious and lengthy process of obtaining a mortgage. Getting accepted for an auto loan can be as fast as getting an approval for a credit card. However, that does not give you an excuse to avoid doing your due diligence and shop for the best car loans.
How to get a car loan
When it comes to applying for a car loan, you need to submit a loan application request together with required documents to the creditor and wait for a pre-approval. However, getting a loan offer with a low interest rate isn’t easy. You must do extensive research to get the financial help you need. It may take you some time to complete the process, but your pockets will be glad that you did. Planning to get your first auto loan? This post explains how to get a car loan in simple steps.
Evaluate your credit score
Your credit score will determine the rate at which you will be required to repay your loan. If you have a higher credit score, your lender will give you a low car loan rate and this will help you save some bucks on interest. Therefore, make sure you have your credit reports to ensure that your credit score is correct.
From your credit reports, lenders will know how much you are eligible for and a suitable monthly payment that you can comfortably make. Potential lenders will also want to ensure that you are a good risk by checking if you can make timely payments every month. For this reason, they will review your credit history and rating to determine how you have been handling other debt obligations previously.
If there are errors in your credit report, you can:
- Dispute imprecisions
File a complaint to the credit bureau, which will solve the matter with the lender and give you feedback within 30 days. Alternatively, you can talk to the lender directly and try to address the issue.
- Choose your payment
Find out the amount you can realistically afford to service the loan every month without hurting your budget. Once you have the amount, get a calculator to determine the total amount you can pay. You can do a simple monthly budget to help you reduce your expenses and save some money for the loan repayment. In most cases, auto loans are available in three, four, five or even six-year terms. Loans with longer terms will give you a lower monthly payment. However, this means that you will be paying the loan for a long period.Remember to factor in other costs such as insurance and maintenance. Even though they won’t be added to your monthly payment, you will need to pay for them as well. If you have some difficulties in paying them, it might be hard for you to keep up with the loan payment. Therefore, make sure that you are well prepared for all the costs. Your insurer will assist you to determine the cost of ensuring the kind of car you intend to purchase.
- Get Pre-Approved
You can get an auto loan from online lenders, a local credit union or a bank. Try to check with a couple of lending alternatives to find out the kind of loan, amount they can offer and their terms. Work with the lender who offers you the best deal.
Numerous banks give out auto loans to clients both online and in person. However, you may realize that the barricades to loan approval are somehow high with leading banks since they get many loan applications and use modern technology to screen borrowers. For this reason, they will reject your application immediately. Community banks are the best alternative since they value their relationships with clients. This means that you can plead your case and get an approval for a car loan even if it was rejected.
- Credit unions
Credit unions strive to create a good relationship with clients. Because they are non-profit and member-owned organizations, they are not motivated by profit. Try your luck with these unions, and you may get a lower interest rate.
Online auto loans from online lenders
Numerous online lenders give out online car loans to clients will all kinds of credit history. Therefore, don’t ignore this alternative when looking for reliable lenders.
If you are eligible for auto finance, you will get a pre-approved car loan that will be valid for a specified period of time and up to a certain amount of cash. You will still have a chance to get a pre-approval for bad credit card loans, but with a higher interest rate. If you don’t have a credit history, you can request someone to co-sign or look for a creditor that works with clients with no credit.
Make sure you conduct your car loan search within a 2-week window. This is because some credit rating models will reprimand you if they find out that your credit history has numerous inquiries. None of the models will question you if the inquiries are within a 14-day period.
To get a pre-approval, the lender will need the proof of:
- You will also need other financial statements such as bank statements or profit and loss ledgers (for the self-employed)
- Credit reference
Failing to present these documents might lead to delayed processing of the application, or the potential lender might reject the application.
Pick your car
The moment you get a pre-approval, start looking for your car. Getting a pre-approval allows you to focus on negotiating the best deal for the vehicle you intend to purchase, instead of settling the financing aspect. Your ability to negotiate may be restricted since many dealerships don’t allow price negotiations on new or used cars.
Be cautious when negotiating with dealers since they can make a deal on funding that could surpass the terms offered by the bank. They can also entice you to take a longer loan that will lessen your monthly payment but will be expensive in the long run.
Finalize the Paperwork
Once you find the car you want and negotiated the cost, the dealer’s funding department will coordinate with the creditor to close the deal. They might lure you to purchase add-ons. Make sure you conduct research beforehand so that you don’t feel forced into making an ill-advised decision.
Start Paying Your Car Loan
Once the deal is closed, you will get the details about the repayment plans for the car loan. The majority of creditors will give you a coupon book to mail in your payments, together with information on how to access your account online. Signing up for the online service will allow you to check your balance and payments any time. You will also have a chance to make your payments online conveniently. Most auto loans enable you to pay your loan in advance. Therefore, if you want to pay off your loan faster, you have a chance. Ensure you check with your creditor to ensure your additional payments are credited accurately.
You can use the simple steps above to get that ride you’ve always desired.