If you’re in the market for a new or used car, you’ll likely need to take out a loan to cover the cost. This can be a daunting process, but don’t worry – we’re here to help! In this blog post, we will discuss three tips that will help you get an auto loan.
Research Different Lenders and What They Offer
The three major credit bureaus, Experian, Equifax, and TransUnion, are the primary sources of information for lenders. Each time you apply for a loan or credit card, your lender will run a “hard” inquiry on your credit report, affecting your scores.
Because each credit bureau uses different scoring models, it’s important to shop around to find the best lender for you. When you get your car loan, it’s not just about finding the lowest interest rate but also finding the most competitively priced lender.
This information is important because it can affect your credit score. Each inquiry takes a small toll on your FICO scores, but multiple inquiries in a short period can have a greater effect. One or two hard inquiries over a few months probably won’t make too much of a difference, but if you’re looking for several new credit accounts at once – like a car loan, new credit card, and financing for furniture – you’re better off waiting 30-45 days between each application.
Pay Off Existing Debt Before Applying for the Loan
Another factor that lenders look at is your debt-to-income ratio. This ratio compares what you currently owe on outstanding credit accounts with how much money you make in a given month. The theory behind the debt-to-income ratio is that consumers who can’t support their current debts probably won’t be able to handle an additional loan payment.
As a general guideline, your debt-to-income ratio should be below 36%. If it’s higher than that, you may have to pay off other debts before applying for the car loan. Also, if you have several credit cards, it’s best to pay off the ones with higher balances first.
Make Sure You Can Afford the Monthly Payments by Using Tools Like an Affordability Calculator
Before you apply for a car loan, you need to know about the different types of loans available. This is especially important if you have bad credit or hope to get a lower interest rate by extending your loan payments over several years.
The most popular type of car loan is known as “5/60” financing. You make monthly payments for five years and finance the vehicle’s entire value with this plan. For a 60-month loan, you can expect to pay a slightly higher interest rate than with a shorter loan term.
Also, be aware that your down payment could affect what type of loan you’re able to get in some cases. If your down payment is less than 20%, you’ll have to take out a loan with payments over five years.
If you’re still unsure about what type of loan is best for you, check out an auto loan calculator. This tool will help you estimate your monthly payments based on the price of your new car, down payment amount, and any extra fees that come with taking out an auto loan.