Most people require a loan to help them purchase a new or used car. If you are looking for an auto loan to help you purchase a car, it is advisable to do your research and ensure you make the wisest choice. There are several options when applying for an auto loan. You can consider a Credit Union, traditional lenders like banks, or car dealership financing options.
Before you sign your name and have the car keys handed over, you will need to plan how to get a car loan and manage the payments. Shopping wisely for the best car loan available to you will require you to be a savvy consumer. The basic requirements know your total budget, ideal monthly payments and additional responsibilities, e.g., auto insurance and sales tax. Read on to learn more about important considerations when considering various lenders for your auto loan.
Where to Apply for an Auto Loan?
It would help if you did some serious research before deciding which auto lender you signed on with. Do not get tempted to go for the financing offered by the dealership because it is often a far cry from the best deal you can get. Although dealership auto loans are convenient, they usually have higher interest rates and an extra financing fee. The best places to shop for auto loans are online lenders, banks and credit unions.
Credit Score
Your credit score plays a significant role in determining whether you are approved for an auto loan and the terms that lenders offer you. The best way to get favorable auto loan rates is by having an excellent credit score. Even though some lenders approve loans for individuals with problematic credit scores, these loans are likely to be offered at high-interest rates and unfavorable terms. It is advisable to check your credit score before applying for a car loan.
Some lenders have minimum credit score requirements, which preclude many people from getting approved for auto loans. Some lenders rely on credit and other factors, e.g., job history, residential stability, total debt, monthly income and debt repayment history when approving people for loans. Consumers with weak credit scores will have to decide whether to proceed and get a car loan at unfriendly terms or work on their credit score before applying for the loan. You can improve your credit score by disputing any errors in the report and repaying some of your debts.
Pre-approval
A pre-approval is a tentative offer from an auto lender based on your personal financial information. The pre-approval process is rapid and convenient. It only takes a few minutes online. The lending websites will require you to share personal information for the evaluation, including your name, address, contacts, tax ID number, social security number, rent/mortgage payments and employment information.
You should submit as many pre-approval applications as you can. This will help you compare the conditional offers you get from the different lenders because you are likely to be preapproved for different loan terms, amounts and interest rates. Be sure to ask the lender whether they perform soft or hard checks on your credit because a hard check could ding your credit.
Even though a pre-approval does not guarantee your approval (particularly if your financial state changes), it is a great tool to help plan your budget. A pre-approval also improves your negotiating position in car dealerships.
How to Compare Auto Lenders
Since auto lenders have different methods for approving loans, they are likely to offer you different terms. When comparing auto lenders, find out the types of loans they offer and any special requirements they may have. Some lenders do not offer loans for used cars. While others only offer loans for used cars that are not, Choose the auto lender who offers the most friendly terms for your particular financial situation.
Auto lenders offer different terms, and window shopping could help you make some serious savings. A 1% or 2% APR difference could make a massive difference in the total loan amount.
Auto lenders may have different criteria for loan approval, and the terms you receive can vary from one lender to another. Some lenders may require a down payment, and some may offer longer or shorter loan terms than others.
Paperwork
The auto loan process is straightforward and can be completed online or over the phone. Sometimes you will need to send certain documents or take them to the dealership when purchasing the vehicle.
