Steps to follow before applying for a car loan

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Buying a new car or a used vehicle is a big financial decision and there are some important steps you should take before submitting an auto loan application. By putting your ducks online ahead of time when it comes to vehicle financing, you can save money and time.

What to do before applying for a car loan

Before you even set foot in a car dealership or dive into online shopping, you need to do some homework beforehand to get the best deal. This research will help you understand the price of the vehicle you can afford, the price of ownership, and the expected rates based on your credit history.

1. Set your budget

The first step is to figure out how much car you can afford. Take advantage of an auto credit calculator to find this number. Using one you can calculate how much you need to pay each month to finance your new set of wheels.

Keep in mind that vehicle maintenance is more than the monthly cost. It includes factors such as gas expenses, insurance, vehicle additions, and all trips to the mechanic – planned or unplanned.

Discount rate advice

Buy the full amount, not just the monthly cost. Focus on the total cost you will have to pay over the course of the loan and the incidental costs of owning a car.

2. Clean up your credit report

Your credit score and history will almost always serve as the main determinant of the rates that potential lenders will offer you. These rates will influence your monthly disbursement and the overall cost of the loan.

Although, more often than not, the worse your credit score, the less competitive your rates will be, many lenders are slowly moving away from traditional acceptance criteria and focusing on factors such as education or track record. professionals. Either way, it’s in your best interest to improve your credit before applying for a loan. Pay close attention to your debt ratio, which compares your monthly bills to your income.

Credit score requirements vary with each lender. But most lenders offer drivers more favorable rates when they have scores above 670. Applicants with scores above 740 can potentially qualify for excellent rates.

3. Shop

As with most big purchases, you’ll need to take the time to explore several options in order to come away with the best deal. Shopping around for loans is essential to know that you are getting the best rates and terms for your loan.

When determining which lender is right for you, be sure to read the fine print and check for additional costs, such as fees or penalties. There is no best loan for everyone, but rather the one that will meet your specific needs rather than another.

When purchasing a vehicle, you may also be offered financing by the dealership, which usually does not offer the best available rates, but can be helpful in some cases. Still, it’s best to come in with a quote from an outside lender in hand.

How to get the best deal

Getting the best deal for your vehicle is about more than the rate and loan terms you receive. There are a few key choices you can make ahead of time to walk away with some extra cash in your pocket.

Compare loan quotes

Searching for multiple quotes — keeping in mind to stay within a two-week buying window — is the first step to finding a great rate. But comparing rates can be complicated.

The most effective approach is to get actual quotes from lenders rather than just going out with the APRs advertised on their websites. Pull to compare the terms and interest rates of at least three different lenders.

Request a loan pre-approval

Applying for loan pre-approval is one of the best ways to stay in control when it comes to negotiations. Pre-approval gives you a clear idea of ​​the terms and rates you can expect with a specific lender, often with just a soft credit check.

The best part: often you don’t even have to choose a vehicle yet, only the amount and duration you want. Not all lenders offer pre-approval, but the added security is a huge plus, so consider looking for loans that offer this option.

Gather your documents

There are a few documents you will need when it comes time to submit a loan application. Arrange the following in advance:

  • Personal information, including your name, address, driver’s license and social security number.
  • Annual income, employer details and payslips.
  • Vehicle information, such as age, mileage and VIN.

Next steps

After preparing your vehicle financing in advance, the fun part can begin. Use your budget and pre-approval to efficiently shop for your car with the same thoroughness you used to get the best car loan.

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