Tips: Applying for a Car Loan
Although you may not be blessed with stellar credit, you can still typically find loan options when you are ready to purchase a car. Loan terms and price differ depending on the lender, loan amount, length of the loan, and whether you are pledging collateral as security for the loan. Consider these tips in getting care with bad credit when you need to borrow money for the purchase
1.Know What Is on Your Credit Report
Before applying for a loan, check your credit report to find out what potential lenders will be seeing. If your report shows late payments, start making on-time payments as soon as possible to build a positive credit history. Be ready to explain circumstances that caused bankruptcies, breaks in employment, or noteworthy payment delinquencies.
If you identify errors on your credit report, try to fix them before applying for a car loan, since credit reporting mistakes can lead to loan denials. The good news is that the majority of consumers who attempt to correct inaccuracies are successful in removing the errors.
2.Find Lenders That Specialize in Car Loans
Lenders that specialize in car loans may be able to provide a wider variety of options when you are negotiating loan terms. Auto lenders may also have programs that prioritize current cash flow and ability to repay rather than relying on credit scores or years-old payment history. Auto sales firms often work with multiple lenders that have an array of loan programs. Options that may be available through auto lending specialists include:
- Loans for old or high-mileage vehicles
- Small or no down payment
- Lease buyout loans
- Private seller financing
- Subprime credit scores
- First-time buyer loans
3. Know What You Can Afford
Before beginning to shop for cars, determine what you can afford. Make as big of a down payment as possible to decrease the loan amount. Using an online auto loan calculator, you can see how the loan amount, loan length, and interest rate combine to affect monthly payments. Understand what you can comfortably repay to help you stick to your budget.
4. Shop Price Instead of Payments
It can be tempting to shop for loans based on what you can repay each month. As described above, this is just one factor when negotiating loan terms. The loan with the smallest monthly payments may carry the highest interest rate, most extended time to repay, and subsequently highest total cost. Whenever possible, select the loan with the lowest annual percentage rate and shortest term to minimize the total finance charges you will pay over the life of the loan.
Research current auto loan rates before beginning to shop for a car. Knowing current pricing trends can be useful during auto-price and loan-term negotiations. Taking the following steps can also help reduce the eventual cost of the loan.
- Refrain from financing add-on services and features such as extended warranties, paint protection, rust-proofing, upgraded stereo system, or leather seats.
- Select the shortest loan term within your budget.
- Purchase a newer car.
- Make extra payments to decrease the total interest paid over the life of the loan.
5. Finalize the Loan Before Driving Away with the Car
One of the most important tips in getting a car with bad credit is to thoroughly read the terms and conditions before signing the loan note. Make sure the loan amount, interest rate and fees, auto make and model, monthly payment amount, loan term, down payment, and financing totals are all accurate. Before driving the car off the lot, the lender should approve the loan, and the loan note should be fully executed by you and the lender.
Finalize the loan before leaving the dealership to protect yourself from what’s referred to as “yo-yo financing.” This problem occurs when the lender turns down the partially completed loan days later and you must borrow at a higher interest rate to keep the car.
Prepare for Your Next Car Loan
There is a good chance today’s car loan will not be your last. Making on-time car loan payments can help rebuild your credit and improve your credit score in preparation for future loan applications. Continue to monitor your credit and correct any misinformation that appears. With a strong payment history, you may be able to qualify for a lower interest rate and less expensive loan when you purchase your next car.