Are you shopping around for a car? If you don’t have enough money to pay for a new or used car in full, you may be considering getting a loan. While financing a car can be costly, sometimes it’s the only way that you can buy a good, reliable car. A quality car is a necessity if you rely on it to get to work or drive your family around town.
Whether you finance the purchase of a car through a bank or a dealership, there is always a chance that you may not be approved. If you are planning on financing a car, there are steps that you can take to help you get approved. Keep reading to find out how!
One of the worst things that you can do is walk into a car dealership with no idea as to how much you can afford to pay. Dealers often base your purchase on what you can pay each month. If you don’t have a good idea of what that is - you may end up with a car that you can’t afford.
Know what you can afford by looking at your monthly budget. A good rule of thumb is to limit your car payment to 10% or less of what you take home each month. Beyond that, you also need to consider the overall cost of the car. When you finance a car, this is usually done between 3 and 5 years. A car dealership may push to set up your financing to meet your monthly budget, but it may be for a much longer-term than you expected. After all, there is a big difference between making $250 payments each month for 3 years and making $250 payments each month for 4 years.
Take the time to figure out how much you can afford before you walk into a dealership. Not only will help you save money, but you’ll also have an idea as to how much you need to finance.
Lenders will look at your credit score to decide whether or not loan you the money to buy a car. Your credit score is also considered when they determine your interest rate.
To a lender, having a high credit score shows that you are not much of a risk – so they’ll be willing to finance your car at a lower interest rate. But what happens if your credit score is just ok? Even though a lender may still finance your purchase, they will most likely charge you a higher interest rate. And if your credit is poor, it may be too risky for them to loan you money.
If your credit is less than stellar, take some time to review your credit report. There may be errors on your report that are causing your score to be lower than it should be. While it may take a few weeks or months to fix mistakes, it is worth it if you are able to get a better interest rate. Or perhaps you’ve been late on some payments. Try to get pay these on time going forward. This will help to improve your score.
If you have a few months before you need to buy a car, taking these small steps can bring your score up. Not only can this put you in a better position to get approved for a car, but you may also save money with a better interest rate.
Once you have a good idea as to what you can afford and know what your credit score is, you can shop around for an automobile loan. There are many options out there including banks, online lenders, and car dealerships. Be sure to compare the length of the loan, the amount of the monthly payment, and the interest rate that you are going to be pay to find the one that is best for you. Once you’ve narrowed this down, start the pre-approval process. If you are able to get pre-approved for a car loan, you already know what your monthly payment is going to be. Now you can focus on the total cost of the car when you go to the dealership.
There is a difference between being pre-approved and pre-qualified. When you are pre-approved, the lender has reviewed your credit and made an offer to lend you money. If you are pre-qualified for a loan, you may have met some initial requirements, but the lender has not done a complete review of your credit. Pre-qualified does not mean that you will receive the loan. You must be approved for the loan by the lender.
Keep in mind - if you are looking at multiple lenders to see which one you can get approved with, you need to do this within a two week period. Lenders have to pull your credit to determine if they will loan you money. Multiple inquiries will reduce your credit score temporarily. If you can do this within a 14-day period, this may be viewed just as one inquiry and can lessen the blow to your credit.
If you are planning on financing a car, taking a few proactive steps can help you to get a loan. By knowing what you can afford and what your credit score is, you have a better idea as to what type of financing is available to you. And if your credit isn’t that great, you can take a few steps to get your score up. Not only will this help you to get approved for a loan, but you may also get a lower interest rate as well.