I bought my first car from my parents. There were a lot of miles and no fuss – not even air conditioning – but the price was right and they sold it for a reasonable price so I could pay cash. My second car, however, was a gray convertible Mustang that I found in the classifieds. For that, I had to get a car loan, so I turned to my local bank. I did not really know what I was doing, but they guided me through the process.
If you are considering getting your first vehicle loan, you may also feel a bit overwhelmed. Here is how the process of getting a car loan works.
Step one: check your credit
Your credit score will play a determining role in the rate you will pay for your loan. While it may seem obvious to someone who has already applied for one of these loans before, if you are a car buyer for the first time, you may not realize how important your credit score is when it’s about getting a loan. can help you get a low car loan rate, which allows you to save money on interest.
Your credit score is based on the information contained in your credit reports. Therefore, to make sure your credit score is accurate, we also advise you to check your credit reports. free on AnnualCreditReport.com once a year.
It’s also a good idea to get your free credit score to see where you are (and you can do this by using Credither’s credit card. Just understand that you probably will not see the same credit score. The auto lender will see There are many different credit scores, and auto lenders typically use custom scores for auto lenders.
Second step: Choose your payment
Your job is to determine how much you can reasonably afford to spend each month on a car payment without adding to your budget. Once you know this amount, you can plug it into an auto loan calculator to find out the total amount you can afford to spend.
Auto loans are generally offered for terms of 3, 4, 5 and 6 years. The longer the loan period, the lower the monthly payment. But a longer car loan also means that you are likely to be “upside down” for a longer period. Being upside down (or “underwater”) on a loan means that you owe more than what the vehicle is worth.
Do not forget to consider insurance and maintenance costs. Although these will not be included in your monthly payment, you will also need to find these funds. If you have difficulty paying for them, you may find it difficult to track the payment of your car. So you want to make sure you are ready for the total cost. An insurance agent can help you estimate the cost of insurance for the types of vehicles you plan to buy.
Step Three: Get a Pre-Approval
You can buy a car loan online, as well as through a credit union or a bank. You do not have to limit yourself to the financial institution where you do your banking, and you can go to several different sources. You want to see what kind of loan, and for what amount, they can offer. The one offering you the best offer is the one with which you can get financing.
If you qualify for a loan, you will get a “pre-approval” that will be valid for a certain period and for a certain amount. It’s a bit like having a blank check to buy your vehicle. You can still spend less than the amount for which you are pre-approved, but you can not spend more unless you want to make up the difference in cash or exchanging your current vehicle. If you buy a vehicle for less than the amount for which you were pre-approved, you will not get the difference in cash; you will simply get a smaller loan.
You do not have a big credit? You can still get pre-authorization for a car loan with bad credit, but your interest rate will be higher. If you do not have a credit history, you can ask someone to co-sign or consider a lender who will work with non-credit borrowers.
Try to do all your auto loan purchases within 14 days. Some credit scoring models will penalize If the number of investigations on your credit report is too high, none of them will do so if these investigations take place within two weeks.
Step Four: Choose your vehicle
Once you are pre-approved, you can seriously dedicate yourself to buying your vehicle. One of the benefits of pre-approval is that you can focus your efforts on negotiating the best deal for the car or truck you want to buy, rather than having to also negotiate financing.
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If the dealer can beat the conditions that were offered to you for a loan, you may want to take it. Just be careful: the dealer may try to convince you to take out a longer loan that will reduce your monthly payment, but will cost you more in the long run.
If you are considering buying a used car from an individual, make sure that the loan you requested covers this option. Be sure to also understand the restrictions on used car loans. You may not be able to buy a vehicle over five years old or more than 75,000 km, for example. And keep in mind that the interest rate of these auto loans can be a bit higher.
Step Five: Finalize the paperwork
Once you have chosen your vehicle and negotiated the price, the car dealership financing service will coordinate with the lender to finalize the sale. They will most likely try to get you to buy add-ons, such as extended warranty, VIN engraving, paint or fabric protection, and so on. Make sure you research them in advance so you do not have to make an uninformed decision.
If you buy a used car from an individual, your lender must guide you through the process of finalizing the sale.
Step Six: Start paying your car loan
Once the sale is complete, you will get information on the payment schedule of your loan. Most lenders will send you a coupon booklet that you can use to post your payments, as well as information on how to access your account online. Even if you plan to pay your loan by mail or at a branch of your financial institution, it is a good idea to sign up for the online service so you can check your balance and payments if you need it. able to make payments online if you travel, for example.
Almost all auto loans allow you to prepay without penalty. If you decide to repay your loan faster, you can do it. Just be sure to check with your lender to make sure your extra payments are processed properly.