Walking, riding your bicycle, or riding the bus can get you to many of your destinations. However, depending on the time, distance, and the need to be punctual, these may be inconvenient, impractical, or even impossible to do. It’s so much easier to drive yourself to most places, which is the reason why so many people have cars.
Everyone understands that the various overhead costs associated with vehicle ownership make it more expensive than using public transportation or just walking, but there’s an immense improvement in convenience. While it’s hard to put a price tag on the value of convenience, one could say that being able to drive where you want when you want is very much worth it.
Purchasing a vehicle, however, is not the same as purchasing a stove – the price of a vehicle is usually more than most people can afford to pay at once.
You could opt for the purchase of a much older vehicle, but that may not be the best decision. There is the consideration of natural wear and tear above all else. Additionally, there may not be the kind of support that you need to maintain the vehicle effectively.
Therefore, you’re left with the option of taking a car loan. By the time you’re finished here, you should be very familiar with the process that is associated with doing so, as well as what you need to do to get yourself into that new car you want.
Get a Credit Report Check
A loan is a form of credit. Unless you’re getting a loan that is specifically designed to ignore your credit score, then the status of your credit always forms a big part of your being approved.
It’s practical for lenders to go this route, as they get security from doing so. There needs to be an assurance that you are both willing and able to pay the loan back. The credit score and credit history give an idea of how you are likely to act with this loan since it is based on your behavior with others.
This report is used as a basis to determine the amount that you qualify for, as well as the interest rate that is applicable. Generally, the better the credit score, the more favorable the terms that you are offered.
The institution does a credit check during the processing of your application. That’s one of the reasons why you pay processing fees, as the check is not free. While this is a part of the process, it’s best that you have an idea of where you stand before you complete the application process.
Therefore, it’s best for you to check the score on your own. Even if you’re not so interested in what the score is, sometimes there is erroneous information present that is a detriment to your receipt of any source of credit. It’s possible that there’s an implication of fraudulent activity present that is incorrect. These are the kinds of things that you need to get cleared up before applying for your loan, as you could be turned down.
Each of the major credit reporting bureaus provides a free annual copy of your credit score. There are also many banks and online sources that do the same.
Another recommended action is for you to use a credit score simulator to do a bit of investigative work before you apply for the loan. While this doesn’t have any bearing on your receipt of the loan, it can help you to determine the impact of the loan on your credit score.
The simulator is a measure of how your score is likely to be impacted based on the acquiring of loans or based on certain payment patterns. Consider using a credit score simulator to see how the loan you’re applying for impacts your score and how your planned payment schedule factors in. Of course, the simulator may not be a perfect representation of what may happen, but it gets very close to reality.
Apply for Multiple Loans
Before you get scared here, this isn’t an advisory for you to go and apply for a bunch of loans to get approved for all of them. That would be overkill in the payment department, and all those hard inquiries on your credit score would mean most of your applications would fail unless you do them very quickly.
Your intention is only to go through with one of the applications, but you do need to see the terms offered by multiple lenders so you can make the best possible decision. Apply to dealerships, online lenders, credit unions, and commercial banks.
When you do so, you can get quotes from all these sources. You may find that places where you hold an account, such as a credit union, are willing to give you a discount because you’re a member.
You may not be purchasing your car from a dealer or a broker. If this is the case, find out if the places that you’re considering allow you to purchase a vehicle from a third party. There may be restrictions in this regard, which would eliminate some places as lender options.
As you review the alternatives, pay attention to the fees, taxes, down payment, loan term, and APR.
Get Your Preapproval
After going over your options for some time, you’re likely to narrow things down to a few lenders. This is where things start getting interesting, as you’re getting closer to selecting one to do business with. There are many different areas in your credit report, and lenders view the importance of each differently, so you may find some terms to be quite favorable, while others are plain abysmal.
Getting a preapproval is your next step. Note that this isn’t the same thing as a pre-qualification that estimates your rates. The pre-approval is more of an offer, which allows you to negotiate better at the car dealer.
Organize Your Budget
This is done based on the offer that you get from preapproval. The offer is a statement of how much the lender is willing to lend you and the terms that surround that. Such terms include the APR and the loan term.
What the preapproval doesn’t mandate is the type of car that you should buy. That decision is left up to you, so all you need to do is set out a budget for what the price of the car should be. Remember, taxes and fees are a part of the loan process, so you may want to factor that into your budget.
Locate the Car for Purchase
At this point, you have all the information you need to inform your decision from a financial perspective. With that out of the way, you get to jump into the excitement of picking out your car.
While this isn’t a part of the financial process, you should consider doing extensive research on some of the cars that you consider. You need to know how supported they are, what part availability is like, any known common issues, and how marketable they are for resale.
Even with your preapproval in hand, you may possibly get disappointed when you make a choice and find out that the car you want cannot be facilitated. Though the loan offer may not tell you that you must buy a certain car, there may be some restrictions that you need to pay some attention to.
The first of these is brand exclusions. For many reasons, some lending institutions are unwilling to fund a loan for certain vehicle brands.
Next, there is the dealership. There are lenders that only trust a specific dealer or set of dealers. Therefore, getting the loan means that you must use a stipulated dealer.
There is also the matter of how the funds are provided. This may not be a problem with a dealer, but if you intend to purchase the car from a private seller, you need to ensure that the funds are provided in a convenient way.
Finally, you must consider the time restriction. You have a certain amount of time in which you should use the loan, though this can be extended upon request.
Review the Dealer Generated Offer
Don’t set your heart on the offer you got from the financial institution yet, as you may be able to get one that’s even better. Many car manufacturers have banks that are dedicated to auto purchases via dealers. You may find that the rates you can get are even more favorable than those you could get from traditional lenders.
This process is likely to go even better if you have your preapproval letter to show the kind of rate you’re already getting. Many dealers are willing to try to beat that rate to get your business.
Remember that you just want to get your car with the best terms possible, so there’s no problem if you want to see how favorable things can get for you.
Make Your Loan Choice
At this point, you’re about to buy the car, and you need the money. Therefore, you can’t mess around with rates and lenders any longer. Take the loan that is most attractive to you once the contract doesn’t look like a big issue. Check for any early payoff penalties, unconsented add-ons, hidden fees, or a loan term that’s longer than that which you asked for.
Run through the lender’s required process so the loan can be finalized, and you can get your funds. Note that dealer financing is more likely to have the items discussed above that you should check for.
Pay Your Loan
Now that you’re driving around, remember that you need to pay the loan. The lender made the required commitment, so it’s now time for you to do the same. Remember that making your payments on time contributes to a better credit history report, so try to do so. After about the first six months of on-time payments, you should see your score progressively increasing.