You’re driving home from work when all of a sudden, your car stops working. No how many times you try to crank it, the vehicle doesn’t want to respond. This is the last thing that you need. You don’t have enough money to get a new ride right now. That is unless you take out a car loan. Don’t feel bad.
Many people have to go this route. The important thing is that you don’t let yourself get ripped off. You’ll have to ask plenty of questions to make sure you understand the details of the deal.
Check out this guide to learn everything you need to know about financing your new ride.
What’s My Credit Score?
You can’t do much in life if you don’t have a good credit score. If it’s too low, you’ll have to put more money down, and your interest rate will be a little high. You’ll need to have a score in the 700 range to get the absolute best deal.
You might be able to refinance your old ride if your credit score has improved since the last time you’ve been at the dealership. There are car loans for bad credit out there as well. They don’t have the best interest rate, but it’s better than nothing.
As you can see, you have options. It’s good to know where you stand before you go to the dealership so you can prepare ahead of time.
Where Can I Get Preapproved?
It’s a good idea to get preapproved for a loan before going to a dealership. Having a check in hand will give you a little more buying power. The question is, where can you get preapproved? The answer is anywhere, really. You can go through traditional banks such as Bank of America or Wells Fargo.
You can also get a pretty good deal by checking out a credit union. Whatever avenue you decide to go down, it’s important to shop around. Interest rates tend to vary from company to company. Some places have certain stipulations in place. You may only be able to finance a used car or a new one. Some places have competitive refinancing options.
What Kind of Interest Rate Am I Looking at?
Once you find a loan that you want and check out what their credit score requirements are, it’s time to look at the interest rate. You need to know if you’re going to be able to afford your monthly bills. Ask how often the interest rate will be compounded. To understand compound interest, think about snowballs. The more snow you add to it, the larger it will get.
If it’s added once a year or so, it might not be a deal-breaker. If you’re dealing with daily compound interest, that’s something else altogether. Some lenders increase your interest rate if you miss a payment. It’s also good to find out where your first year’s payments are going. Are they being put toward the original loan or the interest rate?
How Will My Downpayment Play Into Things?
Almost every dealership requires you to put a downpayment down on a vehicle. How much money you have to use for your downpayment depends on your credit score and payment history.
If you have a repo on your account, you’ll have to pay more money, for example. In some cases, you can fork over a larger downpayment to decrease your interest rate.
That might take some stress off of you when it comes time to pay your bills each month. If you’re already receiving a good rate, and there’s a prepayment penalty, it might be better for you to hold onto your savings for a rainy day.
What Are the Repayment Terms?
Once the car keys are in your hands, things are pretty straightforward. You’ll make monthly payments until you own the vehicle. The question you need to ask is what will happen if you pay off your loan early.
Prepayment penalties are pretty rare, but they are something that you might run into. If there is one, that should raise a few red flags in your head. Make sure that you review the rest of the agreement in great detail before you sign on the dotted line.
General Loan Tips
Now that you’ve gotten all your burning car loan interest rate questions out of the way, it’s time to go through the buying process. Here are a few general loan tips that will stop you from getting scammed during the late stages of your deal.
Check Your Credit Report
You apply for a car loan only to get turned down. That’s weird. The last time you checked, your credit score was decent. To find out what went wrong, you’ll have to get a credit report. You’re entitled to a free one every twelve months. Review it thoroughly for any errors.
If someone’s taken your credit for a ride, you’ll see a list of fraudulent activities that are dragging your score down. You’ll have to get these fixed before you apply for another loan. If everything seems to be in order, you’re in for a little bit more work. You’ll have to take a year or so to pay off your debts and improve your score before you can qualify for a loan.
Get Preapproved
Again, getting preapproved will give you more buying power when you get to the dealership. The salesman is more likely to take you seriously if you have a check in your hand. That’s not the only reason why you should look for preapproval. You’ll also be able to create a budget based on your amount.
To apply for one of these loans, you’ll have to put in some of your personal information. The lender will do a hard credit pull and tell you how much money you have to work with. When the hard check happens, it will cause your credit score to go down a bit. If you’ve gotten a preapproval letter from multiple banks, go ahead and apply to all of them. This will count as a single check. Your score will take less of a dip this way.
Prequalified
Some companies will send you a letter telling you that you’re prequalified rather than approved. This means that the company has only done a soft credit check. Once you apply, they’ll do a more thorough check. Your rate may change depending on what shows up on your credit report. You may get declined for a loan altogether.
You’re only prequalified, so the company doesn’t owe you anything.
Set Your Budget
Buying a vehicle doesn’t end when you drive it off the lot. You’ll have to pay for taxes and other expenses. This is something that you need to factor in when you go shopping.
If you’re going to have to put your entire loan toward the vehicle, that will affect how much car you can buy. Use your loan coupled with a car loan payment calculator to figure out your budget before you go to the dealership. Don’t let the salesman upsell you.
Finding Your Ride
You should be okay to start looking for a car at this point. To avoid disappointment, you need to read your loan agreement in full. The last thing you want is to get turned down for your dream car due to a small snag that you didn’t foresee.
Some lenders put a limit on what kind of vehicle you can buy. For example, they may prohibit you from buying an electric car. There are companies that will only work with a specific dealership. You may have time restrictions on your loan. Meaning, if wait too long to buy your car after accepting the offer, you’ll miss your opportunity to use the money.
Don’t Rule Out the Dealership’s Loan Offer
Most dealerships have their own bank that they work through. You might be able to get a better interest rate if you take the company’s offer vs. going with a different lender. That doesn’t mean you still shouldn’t try to get preapproved. The financing officer may offer you a special deal to try and beat the one you’ve already been given. It gives you a bargaining chip.
Get the Best Car Loan
Most people can’t pay for a vehicle with the money in their pocket. If you’re one of these individuals, that means you’ll have to get a car loan. How much money you get depends on your credit score and history. As long as both are in good standing, you might be able to drive off the lot with your dream car. We hope that you’ve been able to use this article to find out where you stand.
Are you looking for even more car buying advice? Check out our blog daily for all the latest tips and tricks.