When you’re in the market for a new car, the financing process can be daunting. But by arming yourself with knowledge and understanding the different steps, you can make the process less daunting.
1. Determine your car loan budget
The question of how many cars you can buy isn’t easy, especially when you consider that buying a car can be a big investment. However, the best answer to this question is based on your budget and ability to repay the loan. Consider these three main steps.
- Determine your current and future financial situation. See your current income and the likelihood that you will continue in your current job. If you have a big change ahead of you, think about it.
- Consider the total cost of ownership. The maintenance costs, fuel costs and insurance costs you will incur must be taken into account.
- Evaluate other costs. In order to make a financially sound decision, you should keep a budget and be aware of your off-vehicle expenses, such as other debt payments.
2. Check your credit report
The first step in approving a car loan is to check your credit report for errors. Errors such as duplicate accounts, missing payment history, or misspelled names can affect your credit score and cause you to be rejected.
Check your credit score
You can usually get a credit check from your bank for free. This is usually your FICO credit score, which is updated monthly.
However, not every credit rating falls within the FICO range. You must pay attention to the type of rating you receive.
Check your credit report
Your credit report is more detailed than your credit score. It includes every account you’ve had over the past seven years, including payment history, how much you owe, and whether you’ve been sued or declared bankrupt.
Credit reports come from the three major credit bureaus: Equifax, Experian, and TransUnion. While you usually only get these reports for free once a year, you can currently get them weekly for free at AnnualCreditReport.com.
Check for errors
Errors, such as an account listed as unpaid, or an incorrectly reported late payment, can affect your credit score. Check your report to make sure everything is correct.
Make sure to submit all changes 30 days or more before submitting your application. It may take up to 30 days for your request to be processed.
Do not open new accounts
Opening a new credit account can temporarily lower your credit score. If possible, it’s best to wait until you get a car loan before opening other accounts.
Limit your credit card usage
A high credit card balance can significantly affect your credit score. Avoid adding revolving credit and stick to cash payments if you can.
3. Apply for car loan pre-approval
You can go through the pre-approval process before going to the retailer. In fact, when you walk into a dealer’s finance office, there’s a good chance you’ll get a lower price than the pre-approved price. This is because dealers add commissions to any rates offered by the lenders they work with.
Pre-approval is also a great way to know exactly how much you can borrow. You can also bargain as if you were buying with cash once you arrive at the merchant.
It is recommended that you seek pre-approval from at least three lenders to ensure you get the best deal.
4. Buy your car
The next step is the actual purchase. Find a different vehicle that suits your needs and head to a car dealer for a test drive. Talk to sellers and compare your options to see what’s out there. Just keep track of your overall purchasing power as this is the crux of the negotiation.
However, it is important to do your research before entering a dealer’s property. Sites like Edmunds and Kelley Blue Book allow you to compare different vehicles and how much they cost based on make, model, trim level and even your location.
If you’re looking to trade in an existing car – especially if you’re looking to buy a used car – check out online services like Carvana and Vroom. You might get a better deal than at the dealership.
5. Complete a car loan
Once you find the right car loan, confirm the loan terms. The lender may ask you to send all required documents, including proof of insurance, before agreeing to the terms and signing the documents.
- Sign auto loan documents. Once you agree to the terms, please sign the document. If you have a co-applicant or co-signer, that person should also sign the auto loan document. If you get a car loan from a dealership, the dealership will provide an auto loan agreement with the lender’s contact information.
- Obtain vehicle ownership and registration information. You will need to send your vehicle title to the lender and update the vehicle registration to your name, which is usually handled by the dealership when you buy from it. If not, work with the seller and the DMV to update the required documents. You will also need proof of insurance.
- Possession of a vehicle. Once you get a car loan and close the sale, you can own the vehicle.
النتيجة النهائية
When you’re in the market for a new car, the financing process can be daunting, so arm yourself with knowledge. If you’re not sure how much you can afford, check your credit score before visiting a dealer.
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