As much as paying cash for a car sounds like the best approach, the truth is that many people will need a loan to purchase a car, whether the car is used or new.
The following are some things you need to know before applying for a car loan.
1. Know Your Credit Score
Your credit score basically defines your ability to repay the loan. For this reason, whether you’re applying for a car loan through the bank, car dealership, or auto loan dealer, the interest rates will depend on your credit score.
A low credit score means that you’ll get a smaller loan amount or even higher interest rates. This makes it all-important to check your credit score before applying for a car loan.
2. Compare Interest Rates
When applying for a car loan, it’s important to bear in mind that there are no standard interest rates in the market. The interest rate you pay for your car loan will vary depending on the lender, your credit score, the car you want to buy, and your repayment capacity, among other factors.
For this reason, ensure that you carefully research the lender who has the best offers. This is because even the slightest margins in the interests could translate to a bigger difference in the amount you’re supposed to repay the lender.
3. Apply During the 14-Day Span
Another important thing you need to know when applying for a car loan is that your credit score is likely to take a hit when lenders check your credit history. However, ensuring that your application process occurs within the 14-day span will reduce this negative impact.
Since the FICO shopping duration is 14 days, all the inquiries made within this period are considered as one. Therefore, your credit score won’t take a hit if you apply for a car loan within this period.
4. Get Pre Approved First
When applying for a car loan, it’s best to have a substantial financing offer from a lender or even a bank. This is because being pre approved basically means that you have a ready loan that can cover the cost of the car you’re looking to purchase.
For this reason, before applying for a car loan, seek pre approval from banks, online lenders, or even credit unions to give you that additional leverage during negotiations.
5. Take Quotes
Different car dealers are linked with different banks. This means that every dealership will quote unique charges and rates compared to the next. When you get several quotes from different dealers of your preferred car, you’ll be in a better position to make a more informed decision.
6. Have All the Required Documents
Almost all the banks you’ll be dealing with will need to verify your paperwork and credit history before proceeding. You’ll need documents like your ID, banks statements, proof of income, and possibly, income tax statements.
Applying for a car loan can be a bit more complex than you had anticipated. For this reason, it’s important that you follow the above tips to ensure that you get the best deal possible.
