How to apply for a car loan
The car-buying process is about more than just shopping for a vehicle. When you drive a car off the dealership lot, you’re going home with a new ride and the loan to pay for that new ride. So even though settling the debate between getting that sunroof or heated seats is definitely the fun part, don’t forget about finding the right car loan. It’s kind of an important detail!
Where should you apply for an auto loan?
Credit unions and banks and dealerships, oh my! While lenders are racing to get those keys in your hand, don’t forget to do your homework first. Getting caught up in shopping excitement leaves many car-buyers spending their time researching vehicles instead of exploring their financial options before they even step foot onto a car lot.
And although the appeal of financing with a dealership might be spurred solely by the convenience factor, comparing your lenders and finding out what types of auto loans are available to you really can pay off. Banking on convenience might mean a higher interest rate and more money out of your pocket in the long run.
Calculating your car payments
There are a lot of things to consider when figuring out your car budget. So bust out that spreadsheet or calculator app, and get comfortable. A good place to start is to figure out how much you can spend on a down payment and how much you think you can afford to pay each month. Your monthly payments depend on:
- The price of the car
- The interest rate
- The length of the loan
- How much you make as a down payment
- How much trade-in value your current vehicle is worth
Just don’t focus too much on the monthly payments
The length of the loan also matters, because your car’s total cost will include the amount of interest you’ll pay over the length of the loan. Car loans with longer terms means making more payments and probably paying more interest.
Getting pre-approved for a car loan If you decide to shop for a car loan on your own, you can get pre-approved through a bank or credit union. All you have to do is make a preliminary loan application with a lender, who will check out your credit history and other relevant financial information. Your credit score might play a big role in figuring out the loan terms a lender is willing to approve for you.
Pre-approval doesn’t mean that you or the lender have to enter into a loan agreement. The lender is only providing you with the size of the loan they are willing to finance and the interest rate they will most likely offer. Basically, this will give you a better idea of your budget. Getting pre-approved and knowing how much you can spend might give you more bargaining power with a dealership.
You can apply with multiple lenders and compare quotes to find the best interest rate. But what about your credit? If you make all of your applications within a short period of time, it will reduce the impact on your score. Several hard credit inquiries made within 14 days or less are only counted as one inquiry.
Comparing auto loan lenders
What makes lenders different? The things they look at for approval can be different, and the terms of the loans they are willing to offer might be as well.
The first thing you’ll want to do when comparing lenders is figure out what types of auto loans they have. Some might only work with car dealerships that partner with a name brand auto manufacturer. Others will be open to financing a car bought from an independent dealer or a private seller. You might also run into lenders that have special requirements when financing loans for a used car, like the year of the vehicle, the mileage or the model.
Comparing lenders can help you find the best savings. Even a difference of a half a percentage point in the interest rate can keep money in your bank account.
What paperwork is involved with a car loan?
The paperwork will most likely look a little different for every lender, but the loan process usually requires paycheck stubs, proof of residence, and a valid driver’s license. Many places can complete the auto loan application over the phone or online.
Once you are in the final stages of buying your new vehicle, you might need to send the purchase agreement, registration, and title to the lender. Usually, if you are pre-approved, the lender will help you through finishing the process.
If you have any questions about the car loan application process, please get in touch with us. We’re happy to help you get behind the wheel of your next car!