5 Things You Should Do Before Taking an Auto Loan

5 Things You Should Do Before Taking an Auto Loan

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You may be at a stage where getting a new car is paramount to your wellbeing. So, you’ve considered getting a loan because your bank balance isn't ready for a car purchase outright. Applying for a loan can be a very smooth process if you've devoted time to learn how it's done. We’ve simplified the whole process for you in 5 easy steps. 

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  1. Check Your Credit Report
  2. Select Your Payment
  3. Seek Pre-approval
  4. Choose Your Preferred Vehicle
  5. Complete the Paperwork

Just like any other loan, you'd need to impress banks and auto lenders with your credit score before they consider your application. A credit report wouldn't be news to those who have accessed loans before. But if you're new to loans, then your credit score would be relevant to your application.

A good credit score means you have an excellent financial history. It translates to having your bills paid on time, you barely owe, and if you've been consistent with this habit. With a high credit score, you can get some of the best deals on auto loans with low interest rates.

What determines your credit score is the data presented on your credit report. You must know your score before applying for an auto loan. There are a few websites and apps that allow you to access your credit report on your device. Credit scores are usually categorized, so ensure you use a service that'll enable you to check if your credit score meets the standards of auto lenders. 

Take time to consider all your financial commitments. How much would you be able to spend on monthly car payments without drilling holes into your budget? Don't speculate; write out a realistic amount. Enter this figure into a car loan calculator app to get the total amount. The app will need to calculate the loan in years, as most car loans offer from 3 to 6-year repayment plans.

So, the more the years, the lesser the monthly payments.

However, more extended payments mean you will be paying more than the car is worth. Finance experts describe this situation as being "upside-down" on a loan payment. There are other things you should know before getting a vehicle, including the cost of maintenance, and an insurance plan. The auto lenders won't cover them for you; you need to calculate and provide finance for these necessities on the side.

If these additional costs are a problem, then it means you may struggle with your car payment. Be sure you have factored in all these costs, including monthly repayments. You can consult insurance agents for a comfortable vehicle insurance plan.

From local credit unions to banks to online services and loan apps, there are several options to consider for your auto loan. Be flexible, look beyond your regular banks and financial institutions. Today, there are many services accessible to you. The most important thing is to check what loans are offered and try to get yourself the best deal.

That you've qualified for a loan means you have received "preapproval" which would be valid for a period and specific loan amount range. A preapproval gives you a blank check. You can use the preapprovals to access amounts within a designated range for your new car although you are permitted to spend less and more, not beyond the specified range.

Bad credit? You can still get a preapproval. However, this privilege would attract a higher interest rate. If your case is "No credit history," then you'll need someone to co-sign or act as your referee. You can also run an online search for lenders who would consider you without a high credit score.   

After your preapproval, go ahead and shop for your new car or truck. Getting a good auto loan deal is not enough; you also need something your loan can afford. Don't be distracted. A car dealer might try convincing you to take a vehicle that will lessen your monthly payments. This decision has its implications as you'd be falling into an "upside-down loan situation."

Another option might be to buy a used car. Verify the terms of your loan. Do they allow this option? Many used car loans come with restrictions. Things to consider before taking used car loans include the lender's terms on vehicle mileage, vehicle age, and the interest rate may be higher. 

After selecting your preferred vehicle and concluded price negotiation, the car dealer will finish up sales and terms of payments with your lender. More often than not, car dealers may ask you to buy additional items like VIN etching, extended warranty, fabric protection, and others. It would be best if you did extensive research on things to consider while shopping for your car. You will discover that not so many items may be of utmost priority. So include these car add-ons to your research list to be informed. They may be things you can get yourself. If you've bought a used car, your lender will show you how to finalize the sales and payment process with the seller.

We hope that you will use these tips to simplify and fast track your auto loan application. Prepare to get the best auto loan deals. Start now by choosing from our Best 10 Apps for Calculating Auto Financing.