When it comes to personal finances, there is always a right and wrong way to get things done. That certainly applies to trying to secure a car loan.
Securing an auto loan takes a little more effort than you might realize. Failure to dot one I or cross one T could be the difference between getting approval or rejection. Also, choosing the wrong lender or loan could end up costing you money.
What can you do to make sure you get a favorable response from lenders? There are certain steps you can take to make sure that the scales will be tipped in your favor.
1. Check Your Credit Score
Before you set out to buy a car, you need to accept the fact you will need financial support from a lender. Lenders are going to pay particular attention to your monthly income and credit score.
The first step in the car buying process should be taking a look at your credit score. By doing so, you can get a sense of where you might stand with lenders. It would also give you an opportunity to address errors that might be adversely affecting your credit score.
2. Seek Preapproval for a Loan
There isn’t much on planet earth that’s more disappointing than trying to buy a new car only to discover you can’t qualify for a loan. The good news is there is a way you can protect yourself from having that happen.
A lot of car lenders are more than happy to offer prospective borrowers preapproval for a car purchase. They provide pre approvals based on minimal credit information to help them set an amount. It’s not necessary to have a particular car in mind. They are essentially approving an amount, assuming the collateral will be sufficient.
3. Set Your Car Buying Budget
Once you have a preapproved loan in place, you should have a pretty good idea of what a typical lender believes you can afford to spend on a car. That’s only part of the budgeting process. You also need to take a serious look at your financial situation and set a budget that won’t create the possibility of future financial problems.
4. Locate the Car You Want
After establishing your car-buying budget, you can begin your car search in earnest. It is very important for you to focus more on what you can afford as opposed to what you want. If you can afford the car you want, that would be the ideal situation.
When you find a car of interest, you owe it to yourself to get the best deal possible, a deal that includes the extras that you want/need. To do that, you should get offers from multiple dealers. If you do the work, you will find a dealership that’s willing to do a little more to secure your business.
5. Apply With Multiple Lenders
Once you have the vehicle you want in mind, it’s time to apply for loans. While you will certainly want to apply with the lender or lenders that preapproved your purchase, you are not obligated to do so. You owe it to yourself to apply with at least two lenders.
Caution: Multiple credit inquiries could hurt your credit score. Therefore, you need to choose prospective lenders carefully.
6. Select a Loan
You can consider loan offers as a bid for your business. No one should have to explain to you that you will want to select the loan offer that comes with the best terms and conditions. The things you should focus on are the interest rate, hidden fees, potential prepayment penalties, and the term of the loan.
After you get approval, the ball is in your court. It’s up to you to make sure you make all of your car payments on time.