Are you ready to turn in your current car for a new car? Are you looking to purchase your first new car? Buying a new car is an exciting time!
It’s like getting a new toy but for a grown-up. Other than being something fun to enjoy, a new car is also beneficial for a few reasons. Maybe you need a larger vehicle to provide your growing family with enough room.
You might want to benefit from all the awesome features newer cars have to offer, including safety features as well. Whatever the case may be, it’s time to start considering car loans. Where will you go to find a lender?
How much will you be approved for and what’s your budget? In the guide below, there’s a list of several steps to take when preparing to finance a new car. Continue reading to learn more!
Selecting the Right Lender
Before you can purchase a new car, you’ll need to select the right lender. You’ll most likely have several lender options to choose from in your area. It’s up to you to find a lender that offers a low-interest rate and monthly installments you can afford.
Here are a few factors to consider.
Compare Interest Rates
To start finding a good lender, begin by comparing interest rates. Not all lenders will offer the same interest rates. You want to find one that can offer you the lowest rate for car loans compared to all others.
You can do this by simply asking the lenders what their current rates look like. Keep in mind that your credit score could determine the interest rate you’re offered.
Provide Car Details
If you already know what vehicle you want to purchase, then you can consider providing car details to the lender. The year, make, model, mileage, and VIN (vehicle identification number) will all come in handy when getting approved for a loan. The lender will review the car details and then determine if they’ll lend you a loan to purchase the car.
Some lenders won’t approve you for a loan if the vehicle has over 100,000 miles or has a rebuilt title, for example.
Ask for Preapproval
Getting preapproved for a car loan doesn’t automatically mean you have to purchase a car. You’ll have a certain amount of time that the draft is good for. This means you can take your time searching for a car that meets all your requirements before finalizing the loan.
Preapproval helps because it’ll tell you exactly how much you can afford. Walk into the dealer with your draft and tell them you must be out the door at that specific price.
Inquire About Monthly Installments
When speaking with your lender, it’s essential to know how long the loan term is for. The length of the loan term will have a direct effect on your monthly installments. The longer the loan term is, the lower the payments are because they’re spread out.
However, not everyone will qualify for longer loan terms. To qualify for a longer loan term, you’ll need to have great credit. If your credit is good, then ask what’s the longest term you qualify for and what your payments would be.
Improve Your Credit Score
If you want the best interest rate and a long-term loan, then you’ll want to improve your credit score. Depending on what your credit score is, you might even need to improve your credit score to be approved for a loan. There are a few ways you can begin to start improving your credit card score and here’s what you need to know:
Before that, if you want, you can also read about: How to Get Started with Sears Credit Card!
Review for Discrepancies
You can start building your credit by reviewing your credit score report for discrepancies. Unfortunately, there are times when discrepancies will show up on your credit report. If you do find an error, be sure to report it as soon as possible to have it reviewed and corrected.
This will help boost your score.
Start Paying Off Debt
One of the best ways to start raising your credit score is to start paying off your debt. Start by paying off your high-interest debt first. You’ll want to pay all bills/debt on time, but pay more towards the ones with the highest interest rates.
Even if you’re only paying an extra $5-10 on the payment, it’ll help pay it off more quickly and raise your score.
Consolidate Your Debt
If you have multiple loans or debt, then you might want to consider consolidating your debt. Debt consolidation is when you combine all of your debt into one loan with one low interest rate. This might help you pay off your debt quicker, therefore increasing your credit score.
Keep Credit Use at 30% or Less
If you have any lines of credit opened, then start reviewing what their use is. A good rule of thumb is to keep credit use at 30% or less than what you’re allowed to spend. This will help keep your credit high.
Keeping credit card usage at more than 30% will directly impact your credit score. Bring your credit card use to at least 30%, and you should see an increase in your score.
Find a Co-Signer If Needed
There might be a few reasons why you’re having a difficult time getting approved for a car loan. If you’re struggling to find a lender to approve you, then you can consider getting a co-signer. A co-signer is someone who has good credit and sufficient income to take on the responsibility of the car loan if you were no longer to make payments.
Here are a few times when a co-signer could come in handy.
You Have No Credit
Most young people don’t have credit. Having no credit in some cases can be just as impactful as having bad credit. If you haven’t had the chance to build your own credit before wanting to buy a new car, then a co-signer could be beneficial.
You Have Bad Credit
There are several reasons why you might have bad credit. Being in debt is one way to earn yourself a bad credit score. Filing for bankruptcy will also have an impact on your credit.
A low credit score will affect your ability to get approved for a loan from many lenders. If this is the case, then find a co-signer who doesn’t mind signing for you.
You Don’t Make Enough Money
Sometimes, credit isn’t the only factor preventing you from being approved. Before getting approved for a car loan, the lender will not only ruin your credit score but will ask for proof of income as well. If you already have other loans, don’t make a certain amount of money each month, then they could deny you.
When this happens, a co-signer will come in handy. They’ll supplement your income by adding theirs when asking for approval.
Research the Car You Want
It’s always a good idea to research the car you want before asking for a loan. If you have a car in mind and its price range, then you can bring this information to your lender to ask for approval for a certain amount. It’s also nice to have details on a specific car you want to buy before visiting the lender so you can bring these details to them.
They’ll then research the vehicle for you and let you know how much it’s worth and if it qualifies for a loan. Here are a few factors to look into when researching cars.
Check the Title
The first thing to check is the car’s title. Does the seller have the car title in hand? You can’t legally purchase a car without them signing the title over to the lender.
Is it a salvaged or rebuilt title? Many lenders won’t loan money for a vehicle with a title in this condition.
Don’t jump on the first listing you see. Take your time to compare prices for the same vehicle with similar miles and ones in similar conditions. What’s considered a fair price and what’s too high?
Use this information to negotiate with the seller.
Inspect the Vehicle
Have a complete inspection of the vehicle done before driving off in it. If possible, have your mechanic meet you and look over the car for you. Don’t forget to take it for a test drive either and listen for any strange noises.
The last thing you want to do is purchase a vehicle in need of several major repairs.
Finalize Your Loan
Now you can finalize your loan. Read through the entire contract to ensure everything is correct and that you agree to all the terms. Before signing, look for a few things.
Ask About Hidden Fees
Some loans come with hidden fees. Some additional fees are tax, tag, and title. If there are any other fees other than the ones listed here, then you’ll want to know about them before signing.
Inquire About Add-Ons
There will be several add-on options for your loan. These options may include tire insurance, gap insurance, and more. Make sure you want and agree to these add-ons before signing.
You can choose not to have them added to your loan. If everything looks good, then you can sign and leave it in your new car!
Are You Ready to Drive Off in Your New Car?
You’ve waited long enough and are most likely ready to drive off in your new car! Be sure to have this guide handy when you’re ready to start the loan process. Follow each one of these steps to find a lender that can provide you with the right loan for you and get you into the car you desire.
If you’re interested in more finance topics, then don’t hesitate to check back here on a regular basis!
Likewise, consider worth reading about: How to Plan a Family Budget?