5 Steps to Get an Auto Loan
You don’t have to save up for years to buy your dream car. Instead, look for a reliable financial institution to lend you the money, and you later pay back the amount owed and interest within a specific number of months. Although getting a loan may seem daunting, it can be a smooth process with proper planning. Follow the steps below to get the best deal on your car’s financing.
Check Your Credit Report
Request a copy of your credit report to know your current credit score. Try to improve your credit as much as you can to prove your trustworthiness to the lenders. If there is any incorrect information in your credit report, have it corrected before applying for the loan. A higher credit score improves your ability to secure a loan at lower interest rates and better terms. Some lenders approve car loans for poor credit scores, but this comes at a higher interest rate and less favorable terms.
Know How Much You Can Borrow
Next, evaluate your finances to determine what type of car you can afford. Know your debt-income ratio, and it should be around 40% or less. Note that most financiers won’t lend you money beyond your repayment ability. So, assess how much you can comfortably pay each month. Put as much money down as possible to reduce your monthly payment. Consider your repayment plan also. Cars significantly depreciate over time, so choose a loan repayment option of 60 months or below. Factor in the cost of running the vehicle, including insurance and maintenance.
Compare Different Financiers
Shop around for the best auto loan deal available. Pick a few lenders like car dealers, your local banks, online lenders, or credit unions. Obtain as many quotes as possible from different lenders. Check the financier’s loan interest rate, term, and extra charges like application, monthly, or early exit fees. Confirm if they offer secured or unsecured loan types and check for additional features like the ability to pay off the loan earlier.
Apply for Pre-approvals
Seek pre-approval from different lenders and compare their offers. You will get an estimate of your rates and how much the lenders can loan you. If either of you changes their mind, you can back out at this stage. Use the pre-approval report to set your budget. If the pre-approval offer goes beyond your budget, lower your loan amount.
Get the Loan
Review the loan offers and accept the one that best suits your needs. Bring proper documentation like your driving license, pre-approval paperwork, proof of income, and assets based on the lender’s requirements. Remember to read the contract keenly before signing and look out for hidden fees. The lender should guide you through the loan application process and finalize the transaction.
The Bottom Line
Getting an auto loan is a perfect way to purchase a car and, at the same time, build on your credit score. Before signing for a loan, understand all the terms, and remember to pay up on time.