When you’re trying to complete a successful car purchase there’s a lot of things to consider, namely, finding the right car at the right price which could easily be another article in itself. However, if you’re one of the majority of shoppers that plans to finance their car purchase then you’ve got a few more things to consider to help make sure the process goes as smoothly as possible. Securing an auto loan is often the most misunderstood and anxiety-inducing part of the car buying journey – especially if it’s your first time – so we’re going to walk you through 3 things that you need to know before applying for that car loan.
Tip #1 – Know Your Credit Score
Your purchasing power essentially comes down to your credit and your income. Whether you’re buying a home in Edmonton, purchasing a car, or any other major purchase – your personal credit is a major factor. You most likely know how much money you make but when is the last time you checked your credit score? Have you had any previous loans? Were they paid on time? If there’s any unwelcome surprises lurking in your credit report you’re going to want to know about it. You might be able to clear up a deficiency or fix any errors before applying for your loan.
Knowing your score will also help you understand what you should expect to see in an interest rate. An excellent credit score ( 750+ ) will make it easy for you to get the most competitive financing rates, knowing this information will help ensure you don’t settle for anything less. A good score ( 660+ ) will also generally make you eligible for the best rates if you have the income to support the amount of money you’re spending. Individuals with fair credit ( 620 – 659 ) might not be eligible for the very best rates but should still be able to secure a loan with prime interest rates. Anyone under the 620 mark is considered to have poor credit but with more competition from sub-prime lenders offering bad credit car loans, there’s still viable options for you to get approved for a vehicle so you can get back on the road and also start rebuilding your credit.
Tip #2 – Know Your Budget
You should take some time to assess your budget and finances in advance so you understand what’s going to be affordable for you. Don’t forget to consider insurance costs, fuel costs, and maintenance/repair expenses when you’re working out an affordable monthly payment. If you max out your budget now that might spell trouble in the future if your finances change so do your best to calculate a comfortable range.
How much money can you put down? A down payment lowers the overall amount being financed which has several benefits including lowering your monthly payment, reducing the amount of interest you pay over the course of the loan, and making it easier to get the approval. For some of you a down payment might even be required so it’s a good idea to know how much you can realistically put down on the loan.
Tip #3 – Know The Bigger Picture
A car purchase is a big decision and we want to make sure you’ve covered all your bases so you can make a confident decision about your purchase. In addition to understanding your budget you should always do some research into what features and options you need to have in your vehicle to meet your needs. That means evaluating your lifestyle and possibly even narrowing your search down to some specific makes and models to suit you best. Once you find a vehicle that has what you need and fits your budget you know you have a potential winner. This will help you avoid the pitfall of going overboard or even the opposite, buying an insufficient vehicle that you’ll have to replace sooner than expected.
Another consideration is if you have any existing vehicles that you’ll be trading in. What is that vehicle worth? Do you still have an outstanding loan, and if so, how much? The answers will have a significant impact on the amount being financed and the monthly payment for your new vehicle.
To shop around or not to shop around for your auto loan? Regardless of your credit history it’s usually a good idea to shop at least a couple different lenders to make sure you’re getting the best deal. With that said it is true that having your credit pulled by anyone and everyone can be damaging to your credit score so try to narrow it down to 2 or 3 lenders instead of using the shotgun approach. You can use an auto finance professional like the folks at carloans411 or the loan expert at the dealership to help point you in the right direction.
Now that you’ve read through our list you have the 3 essential steps to make sure you’re well prepared for your next auto approval. Happy car shopping!