Most car buyers in the country don’t think about financing until they are buying a car, which could be potentially financially crippling. You need to know exactly how much you can afford to spend on the vehicle and you need to have a plan in place to finance your new ride before you even think about heading to the dealership. Figuring about how to get a car loan is an equally important part of the process.
Some of the most important things you need to think about before getting car financing are:
Learn the lending terms
- Car/auto loan/financing
A contract between the lender and the buyer which states that the lender is agreeing to provide the buyer with the cash for a new/used car. This document also states that the buyer has agreed to pay the money back over time.
The cost of borrowing money from the lender. This is often called APR.
- Loan term
This is the length of the loan usually stated as the number of months
When the financing is first taken out, the principal is the total loan amount which declines after the monthly payments are made.
- Down payment
The down payment is a specific amount that buyers pay when purchasing a car.
- Monthly payment
Buyers need to make payments each month towards the loan principal and interest.
Figure out credit scores
Also known as FICO scores, credit scores differ across different credit-reporting companies (Equifax, TransUnion, and Experian). The higher the credit score, the better are the chances of getting car loans with low-interest rates and vice versa people with a lower score. Usually, people with a score of 720 or above on most scales or a steady income shouldn’t have any issues with financing.
Finding and comparing good financing deals
One should meet with several lenders to find your creditworthiness, different loan interest rates offered by different lenders, the loan-to-value ratio to find how much you will be borrowing as compared to the car’s value, and the risk appetite of the lender. Today’s times have more easy-to-access info about rates and lending options than before. Additionally, one can visit different institutions, including large national banks, finance companies, financing arms of many carmakers, credit unions, small community banks, and online-only banks.
Applying for a car loan
The final process is applying for the loan. You’ll have to provide your personal info to multiple lenders, as it’s a good idea to source finance from various places. Multiple applications aren’t a problem as long as they are done so in a short period of time to avoid damaging one’s credit score. Spaced-out applications knock points off one’s credit score. Doing them over a short period of time is seen as just one inquiry. Also, buyers need to do this a week or two prior to visiting the dealer in order to have preapproved deals in their pockets.
Finalizing the deal
Signing the paperwork is the last thing to do. It’s imperative for buyers to read all documents to ensure that all agreed-upon terms have been included.