If you are ready to buy a new car, chances are you will need a car loan. Before you start applying for a loan, there are a few things that you should do first. When you are thoroughly prepared, you will be able to get the best rate possible, and you can avoid getting yourself into something that you cannot handle financially.
1 Check Your Credit Score and Your Credit Report
Before you start shopping around for lenders with the best rates, you should first check your credit score. If your credit score is low, your interest rate will be high, which will require you to pay thousands of dollars throughout the life of the loan. If your score is really low, you might be better off waiting to buy a new car until it improves.
You should also check your credit report for errors. Errors occur more often than most people think. If there is an error on your credit report, it can lower your score, resulting in a higher interest.
2 Figure Out What You Can Afford
Before you start shopping around for car loans, you should first figure out what you can afford to spend on your monthly payments. When determining what you can afford, you should also consider the cost of insurance. Because you will be making loan payments, the lender will require that you have full coverage. This needs to be taken into consideration when figuring out what you can afford. The last thing you want is to take out a loan that is more than you can handle. If you aren’t able to make the payments, your vehicle will end up getting repossessed, leaving you with no vehicle and serious credit issues.
3 Shop Around For the Best Rates
Your main goal when applying for car loans is to get the lowest rate possible. Most dealerships have in-house lenders, but you are not required to get your loan through them. Before going to the dealership, you should get rates from your bank and online lenders. This will help you decide if it is better to get a loan from the in-house lender at the dealership or from someone else.
4 Get Preapproved
If you have found a lender offering a reasonable rate, you should get preapproved before going to the dealership. Most lenders will give you a preapproval letter, which you can use as a bargaining chip. The dealership would rather you use their lender. If you have proof of preapproval, the dealership’s in-house lender might be willing to negotiate a lower rate.
Getting a new car can be exciting, but it is important that you don’t let your excitement cloud your judgment. Following the tips listed above, you should be able to get the best rate possible.