Getting your first car through auto loan is not an easy process. There are documents to provide and forms to fill. Add to this, you’ll be full of anticipation that you can even accidentally make mistakes while doing the paperwork. So, take a deep breath.
To avoid messing up your chances of having a dream car, here are steps to help you have a stress-free auto loan process:
Step 1 – Check your credit
Your credit score will play a vital role in you getting a low car loan rate. It’s a good idea to get a free credit score to know where you stand. With a high credit score, you can be entitled to lower auto insurance premiums and lower interest rates.
Evaluate your credit report to find any unusual activities. If you have a low credit score, you can give it some boost before car shopping by paying off credit card balances. To get lower interest rates, invest some time in improving your credit score before applying for a car loan.
Step 2 – Set your budget
You have to make sure that your car payment will fit in with your other financial goals. This is why setting a budget and knowing how much you can afford are essential. Once you already have an amount in mind, use a car loan calculator to figure out how much you can afford to spend.
Car loans typically have 3- to 6-year payment terms. The longer the loan term, the lower your monthly payments will be. But take note, longer car loan repayment also means you’ll owe more than what the car is worth.
Factor in maintenance and insurance costs
Remember to plan ahead for new car costs such as auto insurance, registration and maintenance. While these are not included in your monthly payment, you have to come with funds for these as well. By understanding your budget and what to expect, you’ll have a clearer picture of how much you have to actually spend on the car you want.
Step 3 – Get pre-approval
When looking for a car loan, don’t limit yourself online and find different sources. Compare terms, interest rates and lengths of time to get the best deal. Once you find the loan with the best interest rate, terms and loan amount, that will be the one you’ll get pre-approval for.
Pre-approved loans only last for a certain period of time, so get one when you’re very nearly ready to shop for a car. After you get a pre-approval, it will be like having a blank check to buy a car.
- You can spend less than the amount you are pre-approved for but you can’t spend more.
- If you choose a car for less than the amount you’re pre-approved for, you won’t be getting the difference back in cash. Technically, you will only get a smaller loan.
If you don’t get pre-approved, don’t abandon all hope. You can still make a large down payment to lessen the amount you’ll be borrowing or you can ask somebody to cosign the loan for you. When asking someone to cosign, take it seriously because you’re asking them to put their name and credit on the line for you.
Step 4 – Pick out your car
Now that you’re ready to look for your dream car, put extra effort into finding a reliable vehicle and one that fits your budget. Consider the color, gas mileage, size and other features to get an idea of which car is best for you. Once you find what you want, compare prices and check on dealer rebates and incentives.
Be careful of dealers who try to convince you to get a longer loan repayment scheme as it will cost you more in the end. Also, make sure you know the restrictions on your car loans if you don’t want to end up choosing a vehicle you can’t afford.
Step 5 – Finalize the paperwork
Once you’ve picked out a vehicle, the financing department will work with the lender to confirm the sale. All financing institutions are subject to bank terms and conditions so processing time may take longer.
Once the sale has been finalized, you will then get information on your loan payment schedule. Sign up for an online service so that you can view your payments and balance whenever you need to.
Now that you know the steps in getting a car loan, you’ll be able to make the best financial decision in buying your target vehicle. It doesn’t hurt to be prepared especially when it involves spending the money you work hard for.