After buying a home, purchasing a vehicle is likely to be one of the largest purchases you will make.
Therefore, prior to obtaining an auto loan, it is essential to comprehend:
- what you’re consenting to
- the steps required to close the deal
- various ways to get an auto loan
Obtaining an auto loan can be a straightforward process if the necessary steps are taken. However, if you overlook certain factors, you may end up paying more than you bargained for. For many consumers, a casual visit to the local dealership can result in a substantial purchase.
While many people investigate their vehicle preferences prior to their first visit, fewer pay attention to the financing options. Shopping around for an auto loan prior to entering a dealership could save you a substantial amount of money and help you get more car for your money.
Read on to learn the steps to getting an auto loan for the car you need (and want) without breaking the bank.
8 Steps for getting an auto loan
Getting a new car or auto loan affects your overall money picture.
Whether you’re a first-time borrower or a pro, seeing what questions to ask and steps to take can help you avoid common pitfalls, so you can drive off the lot with confidence.
Here are things you should know before you shop for a car or auto loan.
1. Ask questions
You can save yourself a lot of hassles and anxiety by asking the right questions before you get an auto loan.
Some important questions you should ask yourself include:
- How much can I afford?
- Will my credit impact my interest rate?
- Do I want or need a co-signer?
- How much is my trade-in worth?
By answering these questions, you are bound to make an informed choice before entering a dealership.
2. Check your credit score
Your credit score plays a crucial role in determining the interest rate on your auto loan.
A higher credit score is frequently accompanied by a reduced interest rate. Check your credit score prior to submitting an auto loan application. Consider enhancing your credit score if it is low before enrolling.
3. Determine your budget
Determine how much monthly car payment you can afford.
Your budget will help you determine the appropriate price range for a vehicle, given your current financial situation. It will also prevent you from taking on more debt than you can afford.
4. Know the trade-in value
Trade-in value is the amount a dealership will give you towards the purchase of a new car when you give them your old car. This means you can trade in your old car and get a new one at the same time.
Once you know how much it’s worth, you can think about trading it in for another car or selling it yourself and using the money as a down payment. Both options will reduce the amount you need to borrow.
You should choose between trading it in and selling it yourself based on which will save you the most money.
5. Explore different ways to get an auto loan
The majority of buyers require an auto loan to purchase a car or vehicle.
While getting a loan through your dealership may be advantageous, it’s not your only option!
You’ll typically get better interest rates and loan terms by comparing offers from multiple lenders.
You can directly finance your car or auto loan through a bank or credit union.
It is possible to search around for various interest rates and loan terms, as you are not required to work with the financial institution you bank with or belong to. This is typically the less expensive option because you avoid paying the dealer’s markup.
Check and compare auto loan interest rates by requesting estimates from various banks and credit unions. You can also investigate interest rates via online consumer marketplaces or comparison sites; however, be aware that your information may be sent to prospective lenders.
You can also opt for Buy Here, Pay Here dealership financing, particularly if you have no credit history or low credit. However, these types of dealerships tend to have a greater rate of inactivity. Consider whether the advantages of the vehicle outweigh the costs of the loan.
6. Negotiate
In addition to the price of the vehicle, you can negotiate the terms of your auto loan. This can save you hundreds (or even thousands) of dollars over the life of your loan.
Terms of your auto loan that you can renegotiate include:
- interest rate
- prepayment penalty
- add-on products
- vehicle trade-in value
7. Verify details in the paperwork
Things to scrutinize before you sign the paperwork include:
- interest payment
- finance charges
- quantity financed (the amount of money you’re borrowing)
- total payments you’ll have made by the end of your loan
- the total cost of your purchase on credit, with your down payment included
Ensure that all voids on the paperwork have been filled in, some by you and the majority by the dealer.
If the dealer asks you to sign an incomplete or void form, you should refuse.
8. Understand how to close the deal
Before you drive away, verify that the paperwork corresponds to the deal you believe you are receiving and that all interested parties have signed the paperwork. Request printed or electronic copies of your documents and acquire them.
If you receive them electronically, ensure that they are in an easily accessible and printable format.
Auto loan: What to note after you leave the dealership
After you’ve taken out a car loan, you should receive an introductory message from your lender.
These communications will include information on where to send your payments and when they’re due. If you don’t receive this message, make sure you contact your dealer immediately.
