Shopping for a car can be an exciting time as you consider the many options of models, colors, and accessories. Seven out of 10 new cars are financed, however, so finding an auto loan will most likely be an essential part of the process. If you prepare yourself with the right information about auto loans, financing the car won’t detract from your enjoyment of your new wheels.
Three Things To Remember When Shopping For An Auto Loan
When looking for a car loan, keep these things in mind:
Know your financial situation and credit report.
Before you even begin looking for cars, decide how much money you can realistically spend on a car. It also can be a good idea to get the loan first, so there are no problems when you have found your desired car. Before going to the lender, it is important to know what your credit report looks like.
By obtaining a free copy of your report, you can clear up mistakes and raise your score so you can obtain a lower interest rate and improve your chances of being approved.
Keep the big picture in mind.
A small down payment now may not be best in the long term. Because cars depreciate in value, it can be easy to become upside down in your loan, which means you owe more than the car is worth. Putting 20% down is a good option to help avoid this.
If you can’t scrape up enough cash, then keep the term of the loan short. Becoming upside down is also common when you roll old car debts into a new loan. When a dealer offers to trade in your car no matter what you owe, be aware that you will still be the one paying for it, but it will be in your new loan.
Remember to keep the value of the car in mind when considering how long you will be paying for it.
It may seem obvious, but don’t settle on the first lender that gives you a quote. Car dealers, credit unions, banks, and online lenders all provide auto loans. And it is important to compare rates and offers of several lenders before choosing one.
Also ask the lender several questions about the loan. Questions should include: What is the exact amount each payment will be? How many total payments will there be? Is there a prepayment penalty? Is credit insurance required? And is the deal contingent upon a third-party approval of financing?
The last question is particularly important if you are working with a dealer for a loan. You don’t want to leave with the car, only to find out two days later that you weren’t approved for the interest rate quoted. Don’t leave until everything is a done deal.
If you are prepared to ask the right questions, financing your new car will be simpler. And you can enjoy the ride knowing you have made sound financial decisions.