Five things you need to know about car loans before buying
This post was written by Jessica Thiefels.
Buying a car is one of the thickest investments you’ll make, 2nd only to buying a home. While paying cash would be ideal, the reality is that most people need a loan to pay for their car, whether it’s fresh or used. As something that accrues interest as you pay back over time, it’s significant to come ready before taking out a car loan.
Before you commence your car buying process, there are a few significant things that you should know about car loans.
Know the right credit score
Your credit score is the single most significant factor in determining what type of loan you will be able to get from a lender. Whether you’re going through a bank, an auto loan dealer or the dealership itself, the rate will be dependent on it.
Note that not all lenders use, or look at, the same scoring system: “Different lenders have different criteria so the minimum score needed to qualify will vary depending on which company is providing the financing,” according to Ask Experian.
The various scores include FICO Auto Score eight and Vantage Score Trio.0. Know what score the lenders you’re interested in care about and use that to determine which reports you request. If you don’t know your credit score, you can access a copy of your credit report from the three main reporting bureaus for free. All consumers are permitted one copy per year from annualcreditreport.com.
Apply to auto loans during a 14-day time span
Your credit score will slightly decrease when lenders check your credit history, but keeping your application process within a 2-week period helps reduce the negative influence, according to credit experts at Auto.Loan — a secret most lenders won’t tell you. Why is this? The FICO scoring shopping period is fourteen days so all inquiries made during that time will be considered as one, reducing the hit on your score.
Get pre-approved for your loan—then shop for your car
It’s always best to walk into the car dealership with a financing suggest from a bank or lender in your mitt. A pre-approved suggest assures that you have a loan to cover the cost of the car you want.
More importantly, it also gives you extra leverage: “With your lender-approved blank check or coupon in arm, you’re transformed into a ‘cash buyer,’ at the car lot, and you’re in a much stronger negotiating position,” explains Jeanne Lee and Philip Reed of NerdWallet.
You can get pre-approved for a car loan from credit unions, banks, and online lenders.
Do the cost calculations before telling yes
Before you get dangled up on getting your car payment down to a specific amount, it’s significant to understand the factors that go into setting your monthly car payment. The APR rate only has a puny effect on the amount you pay each month.
The more significant factors include the total loan amount you need, whether you have a down payment or not, how much you’re putting down, and the loan term (the repayment time).
Use NerdWallet’s auto loan calculator to play with the numbers. You may be in a hurry to drive that car off the lot, but taking a day to run the numbers can save you thousands in the long run.
Understand dealership financing
Sometimes dealership financing can emerge to be a more attractive suggest. Deals like 0% financing and large cash back rebates, which can ultimately reduce the total amount of your loan, may sound like the best option.
Reminisce that most financing options are only available to the highest qualified buyers. If you have anything negative on your credit report, a low FICO score, or limited credit practice, you will likely not qualify for these specials.
In either case, always shop around — never accept the very first financing option suggested to you — and don’t leave behind to do cost calculations before telling yes.
Financing your fresh car is a superb way to get the vehicle that you want and need without sacrificing. The process can be complicated so keep these tips in mind before telling yes to anything. When you do your research, get pre-approved, and run the math by yourself, you’ll walk away feeling good about the car and your financial situation.
Jessica Thiefels has been writing for more than ten years and is presently a full-time blogger. She is also an ACE Certified Individual Trainer, NASM Certified Fitness Nutrition specialist, and the holder of her own private training business, Fair Assets Fitness. She’s using her practice from writing, editing, and marketing to help people get healthy and learn to love what their figures can do. Go after her on Twitter, Facebook, and Instagram for health articles, fresh workouts and more.