How To Get A Car Loan, From Credit Check To The Field
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If you are ready to buy a new set of wheels, you may be in need of auto financing. Next to a house, a car is probably one of the most expensive purchases you’ll make in your lifetime.
Cars can cost thousands of dollars and vary widely by make and model. Taking out an auto loan may be the best way to get you on the road if you don’t have the full cost of the car on hand, but how do they work?
We are going to explain exactly how auto loans work and what steps you need to take to get one.
1. Look at your finances
Getting an auto loan is a process. It’s a good idea to check your credit report first to make sure there are no errors.
Your credit report can affect your credit score. If you have a low credit score due to mistakes it could lead to a higher interest rate so be sure to dispute them.
Plus, take a look at your finances and budget for your car purchase. You want to make sure that you can afford the monthly payments, given your commitments with other bills like rent, groceries, etc.
2. Look for lenders
There are different auto lenders out there and you want to find the right one for you. You have a few options:
- Get a loan from your local credit union or bank
- Get an auto loan with an online lender
- Get a loan with a car dealership
Each of these options will have different rates and terms, but your credit will play an important role in whether or not you are approved and what rate you get.
When you get a loan from your bank or credit union, you get a lump sum to buy the car. Then you pay off the loan based on your repayment term and your interest rate. Your monthly payment will vary depending on the length of your tenure and your APR.
Another option is to get a loan from the car dealership. Many car dealerships also offer car financing. In many cases, the car dealership may try to beat all the offers you have received elsewhere, so come up with low rates.
3. Get pre-approved
To shop around and get the best rate, you will need to get pre-approved for a car loan. Being pre-approved means you are conditionally approved for funding. The pre-approval will include the amount you can borrow as well as the interest rates and repayment terms.
You can apply for financing from various lenders and get pre-approved by submitting your employment and credit information. Qualifying and being pre-approved gives you more bargaining power at the dealership.
To get started, gather your financial information, such as pay stubs, tax returns, employment information, and more. Preparing these documents can help you complete the application for pre-approval for a car loan.
4. Choose a car
When buying a car, there are two important things to consider: how much you can afford and how much loan you are offered. Ideally, your budget and loan amount are in the same range, but that’s not always the case.
Once you’ve set a budget and obtained pre-approval with estimates, you can do your homework on the type of car that would suit your needs. You want to compare different makes and models and look at all costs in order to find the one that is right for you.
5. Compare the loan offers to the dealer’s offer
If you are pre-approved by a bank or an online lender, you might have more leverage to get the best rates from the dealership because they want your business. You are also likely to get lower interest rates if your credit is strong.
When you compare a loan offer from a financial institution and an offer from a dealership, consider the additional fees, add-ons, repayment terms, monthly payments, and the interest rate.
Your repayment term will have a direct effect on your monthly payment. So for example, if you have a short repayment term, your monthly payments will be larger. If you have a longer repayment term, your monthly payments will be smaller, but you may be paying more interest in the long run.
Additionally, you’ll want to check the APR and factor in the amount of interest added to the total cost of the loan.
6. Accept the loan
After reviewing the offers, accept the loan with the best deal and the best repayment terms for your situation. Read the fine print and the terms and conditions. Once you accept the loan, you will receive financing to buy a car.
7. Buy a car
Once you get an auto loan, you can go to any dealership you want and buy a car. Whether it’s used or new, make sure it’s an investment you feel good about. The value of every car depreciates the minute it leaves the lot, so think carefully about your purchase.
8. Make payments on your loan
After you’ve applied for a car loan, obtained financing, and bought a car, now is the time to pay off your loan.
To keep your credit in good shape, you want to make your payments on time. Make sure you know your payment due date, your monthly payment amount, and where and how to make payments.
This can help you pay off your car loan and keep your credit in good standing, so you can enjoy your new wheelset without any financial problems.