5 questions to ask before you finance a car
Whether you’re a first-time car-buyer or not, it’s totally normal to have questions about the car-buying process. Financing a car can be a complicated process. But there are five key questions that we think can help guide you down the road to owning that car you’ve been dreaming of.
How is my credit history?
Reviewing and understanding your credit history is an important first step in buying a car because it’ll help you know what questions to ask as you move through the process.
What is your credit history? It’s a record of how you have managed your credit in the past. That includes the number of credit lines you have applied/approved for and how good you’ve been at making those credit card or loan payments. Your credit history gives lenders a better idea of how likely you are to pay off your debt.
If you have good credit, getting approved for a car loan shouldn’t be an issue. But if your credit needs work, it could be harder. Even if you are approved for a loan, you could find yourself with a higher interest rate because of your credit history.
What will my auto loan interest rate be?
When you are working through your lending options, we know the biggest question on your mind will be what type of interest rate you can get! You want to aim for an annual percentage rate, or APR, that is close to zero. The lower your APR, the less interest you will pay. Lenders will check out your credit history when determining your APR.
Lots of car-buyers will apply to more than one lender to see which of them is willing to offer the lowest interest rate. It never hurts to explore your options and find the best loan for you.
How much of a down payment can I afford?
Most lenders will expect a down payment, especially if you don’t have the best credit history. There isn’t a limit to how much you can pay up front, but most lenders will suggest a down payment of up to 15 to 20% of the purchase price of the car.
Why pay more up front? A bigger down payment could mean lower monthly payments and less interest paid over the term of the loan. Lenders might also be more comfortable approving an auto loan if you make a bigger down payment. Bottom line, it reduces the amount you owe them and makes you less of a risk.
Knowing how much you can afford to spend on a down payment will help you figure out what kind of car you can afford.
What is the total cost of the car?
Believe it or not, a car’s total cost is about more than the price on the sticker. It includes the final selling price of the car and any other fees and taxes. Do your homework before stepping onto a dealership lot! If you have your eye on a certain car, check out independent pricing guides to get a better sense of the asking price.
Also, consider the normal costs that come with being a car owner. Car insurance and any service or repairs will usually come right out of your wallet too.
Once you have an understanding of the total cost of financing and owning a car, you’ll have a better idea of whether this is a purchase you can afford to make.
What is the value of my trade-in?
If you’re not a first-time car-buyer, you’re probably looking to ditch your current vehicle for a new ride in this process. But not every pre-owned car is destined for the scrap yard. Your current car may have some value as a trade-in and that value can bring down the cost of your new car. There are online sites that can help you estimate the value of your current car, but the dealer will usually inspect it themselves and make their offer.
It’s a good idea to at least have a general idea of how much to expect from your trade-in, so that you don’t have to take the dealer’s initial offer at face value.
If you have any questions about the car loan application process, please get in touch with us. We are here to help you get behind the wheel of your next car!