If it’s your first time buying a car, it’s best to pay it all down in cash. However, this isn’t an option for everyone. Lucky for you, financing a car isn’t as overwhelming as you think it is. Here are four simple steps that demystify Auto financing,
Review Your Credit Heath
The Principal and interest rate on your loan depends on your credit score. Every major reporting bureau will provide you with a free copy of your credit report every 12 months so that’s where you should start. Credit scores typically range from 300 to 850. If you have a credit score of 661 or higher, you’re in luck. This means you can get the best annual percentage rate (APR) on your loan. For buyers with a credit score below 600, consider improving your score before you go any further. Alternatively, rethink your budget and look for a more inexpensive vehicle. You could also get a co-signer on your auto loan. This makes it easier to get approved. Keep in mind that an interest rate is the cost of borrowing money, while an APR is a picture of what you’ll end up paying since it includes fees and discounts.
Applying for A Loan
Auto lenders include large national banks, community banks/credit unions, online lenders, and dealerships. Though your bank might give you a preferred rate, you can always compare financing options online. This will give you more information you can use when it comes to financing your vehicle. Compare interest rates from multiple lenders by using an online car loan calculator.
Getting Preapproved
Sometimes a lender performs a deep credit inquiry to find out what kind of loan and interest rate you’re likely to get. This is called getting preapproved and it gives you a lot more negotiating power at the dealership. You could also opt for getting prequalified by your lender. This involves having the lender do a soft credit check with limited personal and financial information. Getting preapproved or prequalified helps you set a clear budget for your purchase.
Find the Right Vehicle
The last stage in financing your first car is scouting the market for a vehicle that suits your needs and fits your budget. Keep in mind that some lenders have conditions on which dealerships you can shop from. Sometimes dealers offer better finance rates than the ones you’ve been preapproved for by your lender. If this happens, you’re in luck. Read the contract to find hidden fees, potential penalties, and add-ons you might not need.
