Eight Easy Steps to Finance a Car Purchase
Posted Monday, Jun 26, 2023
If you are shopping around for a car but can’t make a lump sum payment, you will need a car loan. Financing a car purchase may sound daunting, but it really isn’t - if you know what to expect and how to go about the process.
You can either arrange financing on your own, or you can assign this task to a car dealer. While financing your car through a dealer is easier, it isn’t always cheap.
Here’s what you need to know when financing a car.
8 Simple Steps to Secure Your Dream Car
Step #1: Know Your Credit
Before applying for a car loan, make sure to check your credit report and your credit score. The credit score is a figure between 300 and 850. Your credit score tells a lot about how likely you are to return what you borrow, which dictates the lender’s confidence in you.
You can find your credit report for free at the major credit bureaus. This report tells you everything about your payment history. However, it doesn’t mention your credit score. What your credit score does allow you to do is keep an eye out for errors that could hamper your credit score.
If you want your credit score, you can get it for free at credit card companies. They will mention your credit score on your monthly statement. Additionally, it is on your online account.. There are several online platforms like Credit Karma that tell you all about your credit score, provided you sign up for their services.
Step #2: Determine Your Affordability and How Much You Can Borrow
Besides determining the type of car, you need, make sure to factor in the following.
- How much can you pay each month?
- How much of a down payment can you make?
- How long will it take to repay the loan?
It is worth noting that longer loans reduce the amount of your monthly payments, but they increase the interest rates, which makes you pay more than the car is worth.
Step #3: Choose Your Lenders
Once you know about your credit score and how much you can afford, it’s time to start looking for a lender.
Banks
The banks you have dealt with in the past can offer you affordable rates, as they are aware of your payment habits. However, unlike credit unions, banks charge higher interest rates on auto loans.
Credit Unions
Unlike larger banks, credit unions offer reduced interest rates. However, you will need to become a member, and membership usually depends on things like your geographical location.
Online Lenders
There are several online banks and lenders offering auto loans. Because they don’t have too many overhead costs, they may offer lower interest rates. However, before choosing an online lender, it is better to do your research, as there is no brick-and-mortar facility that you can visit for the verification of their authenticity.
Step #4: Get Pre-Approved
Once you find the right lender, the next step is to apply for pre-approval. The pre-approval is the lender’s way of telling you they trust you enough to lend you money for your car purchase. It is possible to get pre-approved by as many lenders as you’d like.
However, before signing anything, make sure to compare the interest rates they offer. Some dealerships also offer car financing, but they also mark up the interest rates. Shopping around for interest rates helps you find the kind of financing that suits your affordability.
Step #5: Compare Pre-Approval Offers
After pre-approval, you have a duration of 14 days. During this time, you can gather as many pre-approvals as possible. The best part? There won’t be any inquiry to your credit report.
The worst thing about hard inquiries is that they give the lender a clear picture of your credit history and payment habits, but they can blemish your credit report for future financing needs.
Depending on your lender, a pre-approval can stay valid for a month or two. Make sure the loan is affordable, carries a lower APR, and has the shortest term.
Step #6: Accept the Offer
Now is the time to accept the loan offer you are most happy with. Make sure you have the following documents on hand.
- Proof of income
- Proof of insurance
- Driver’s license
- Details of residency
If you are making a down payment, make sure you have with you a copy of the pre-approval documents. The bank will then arrange the funds or send a check to your dealership.
Step #7: Visit the Dealership
This is the most interesting part. You are finally about to get your car. Head over to the dealership, where you will have to sign some paperwork.
In most cases, the lenders send over a blank check to you. You will fill out the check once you and the dealer have settled on a price.
This is where you will make your down payment. After you take your car, the lender will send you a breakdown of how much you owe.
Step #8: Automate Your Loan Payments
When you sign up for an automatic payment, most lenders offer some interest rate discount. If you automate your loan payments, funds will be automatically deducted from your bank account every month. You can also set up Autopay online or over the phone.
The lender will tell you about the rate discount when you apply on their website or through the paperwork they sent you.
Final Word
Most buyers face difficulty getting an auto loan due to a lack of guidance and education.
At San Auto Dealer, we believe in educating our customers throughout the purchase process, thus helping them make well-informed and smart decisions.
To check out the inventory, head over to our website today or call (718) 299-7100. You can also email us at info@sanautodealer.com.
