It may take a little time to get an auto loan. If your credit is good enough, you can walk into a store today, get a loan, and drive off. But going through the fast track when buying a car is sometimes a good idea.
If you follow certain steps, you can find the best car loan with the lowest rate for your budget.
Related: Best Car Insurance for Teens of 2024
Check your credit report and credit scores.
Get a copy of your credit record before you apply for a car loan. At AnnualCreditReport.com, you can get a free copy of your report every week from Equifax, Experian, and TransUnion, the three big credit bureaus.
When lenders look at your credit report, they can see how well you’ve handled credit in the past. That’s why you should look it over first. Check for mistakes, like late payments that weren’t late or fake accounts you never started. Only apply for a car loan once you have fixed any errors on your credit report.
Your credit score is based on the information in your credit record. What interest rate you get, how much you can borrow, and whether you’re accepted for a loan depends on the report and grades.
You should know your credit score beforehand, but it’s usually outside credit companies’ credit reports. Your bank, a credit card company, or a personal finance company like Cashably will often give you your credit score for free.
Once you know your credit scores, look at what other people with similar credit scores have paid for car loans. This gives you a general idea of the rates you can expect when looking for loans. However, your real rate will depend on factors unique to you, like your credit history.
You’ll also need to meet basic income requirements and show that you’ve had stable jobs. Find a pay stub to prove that you meet these requirements.
Shop auto loans with more than one lender
Find out where you want to apply for an auto loan after you’ve checked your credit and gathered information about your income. If you want to finance a car, here are some choices to think about:
There are significant national and smaller banks.
Credit unions or neighbourhood banks in your area.
Online lenders for cars that don’t have any physical sites.
Aggregators that connect borrowers with loans from a group of lenders.
Online car lots like Carvana offer loans when you buy a car from them.
Dealership financing could be loans from a nearby bank or an automaker (also known as “captive financing”).
Get loan offers from banks, credit unions, and online lenders to compare, even if you plan to apply for a loan at a shop or online store.
Related: Best Business Credit Cards Of August 2024
Get preapproved for an auto loan.
Once you have a short list of lenders, it’s time to get loan offers with interest rate quotes so you can compare them. Lenders look at different parts of your credit report and offer different rates. Another thing that might help you get a better rate is letting lenders know you’re shopping around.
When you apply for a loan for the first time, some lenders may answer with pre-qualified offers and others with pre-approvals. It’s important to know what each one means because they are different.
Based on the little information the lender has about your credit past, pre-qualification gives you an idea of the rate and loan amount you can get. It won’t hurt your credit numbers because it only does a soft credit pull. While pre-qualification can be helpful, remember that your rate may change a lot after a full credit check.
Your main goal is to get pre-approved for a car loan. This is the next step after pre-qualification. You will need to have a hard credit pull, which will temporarily lower your credit scores. The expected rate should be closer to the final rate when you get the loan because the lender knows more about you and your credit history. Some lenders do get enough information from you immediately to approve the loan, which also means they pull your credit report.
When going to lenders who do a hard credit pull, try to make all your applications up to two weeks apart. This is because several credit checks done close together are usually counted as one and have less of an effect on your credit scores.
You can only be sure that your auto loan will be approved if you are pre-qualified or preapproved, but both can help you compare loans and make a budget for your car buy.
Use your loan offers to set a budget.
Your loan proposals will include the maximum amount you can borrow, the interest rate, and an estimated monthly payment. With a car loan calculator, experiment with different loan offers. For example, enter alternative automobile prices, down payment amounts, auto loan term lengths, and rates to see how they affect your monthly payment and total interest.
You may elect to borrow less than a lender claims you may if it implies a lower automobile payment. Setting a budget for how much to spend on a car will be easier if you know your maximum. When creating a budget, include 10% for taxes and fees.
Find your car
Now that you’ve received finance offers and determined your maximum automobile price, it’s time to choose a vehicle.
To avoid disappointment once you’ve decided on a car, make sure to examine loan offers for any lender requirements, such as:
Brands that have been excluded. Some lenders will not finance certain types of vehicles, such as discontinued models or cars built by a specific manufacturer.
Dealership requirements. Some lenders demand you to shop through a predetermined network of dealers.
Private party restrictions. If you plan to purchase a car from an individual, ensure the lender accepts private-party financing.
Time constraints. Most lenders give you at least 30 days to proceed with a loan offer. If you need additional time, phone the lender and ask them to extend the offer.
Select and finalize your loan.
If you buy a car from a dealership or an online car shop, you should also apply for financing there.
Car manufacturers may offer financing at below-market interest rates for their brands purchased from a dealership. Online shops often have their funding and access to a network of lenders. Still, the majority allow you to provide your own.
Make sure to emphasize that you have preapproved loan offers and inquire whether the dealer or online merchant can beat your lowest rate. There’s nothing wrong with asking how low your interest rate can go.
After receiving all loan offers, analyze the information and choose the best one. An auto loan calculator might also aid with this final stage. For example, a loan with a lower monthly payment may be more affordable. However, when you enter information into a calculator, you may discover that the loan is more extended and would cost significantly more in total interest.
You can reject the other offers if you choose dealership or online merchant financing. You will handle the paperwork, but please read your loan contract before signing. Confirm that there are no surprise expenses or add-ons you did not agree to, such as gap insurance.
If you utilize a bank, credit union, or online lender offer, follow the lender’s instructions to finish your loan application and receive funding. Sometimes, a dealership representative will call your lender to request money.
Suppose you acquire a car from a private seller. In that case, your lender will work with you to transfer payments to the individual and pay off any outstanding loans.
Your final step could be delaying a car purchase.
These auto loan application processes are intended to assist you in determining the lowest interest rate for which you qualify. Suppose a lender finds a history of late loan payments or a poor credit score (usually classified as the mid-600s or lower). In that case, you may be authorized for a very high interest rate or denied altogether.
If you don’t need a car immediately, consider spending six months to a year rebuilding your credit before applying again. Paying down other debt balances and making on-time payments will help you improve your credit and qualify for a better loan.
One Response