Buying a car is one of the biggest purchases you will make, so finding something that aligns with your budget and lifestyle is important. It can be especially tricky to find reliable financing for a car, whether you take out a loan or buy it outright.
There are plenty of lenders available that offer car loans, and finding the right one can be difficult. Doing your research can help you secure more favourable interest rates and repayment terms. Here are a few tips to help you get the right auto loan for your car.
Improve Your Credit Score
To secure the best deals on an auto loan, you will need a good credit score. Most lenders will offer low interest rates to individuals with a credit score in the mid to high range. If your credit score is low, you may want to spend some time improving it before applying for an auto loan. This will help you keep the interest rates low. Sometimes, waiting a few months is worth it.
Find a Budget Friendly Car
Before you buy a car, it’s a good idea to figure out your budget. You don’t want to set your eyes on a car that is too expensive. If you already have a car, make sure the new one doesn’t disrupt your finances and makes monthly expenses easy to manage.
Take a good look at your monthly expenses and see if the new monthly payments could impact your budget. It also helps to see if you can divert funds from other things towards the monthly car.
Since you’ll be dealing with interest premiums and other fees, it is important to keep everything within your budget.
Once you’ve determined your budget, you can start looking up cars with affordable price tags. For example, the Nissan Navara is widely touted by experts to be a budget-friendly pickup truck.
Learn the Basic Terminology Related to Car Financing
If you’re not a car enthusiast, it’s easy to get confused with all the industry jargon. But there are a few things you will need to get familiar with. The first thing to note is the interest rate itself, or the actual cost of financing the car. This will be the monthly charge for taking the car loan.
Just as important is the repayment term of your loan. This is the number of months it will take to repay the entire loan. In general, higher car loans will result in more interest rates.
You may also be required to submit a downpayment to purchase the price. This is the initial cash you will be putting towards the car purchase. The downpayment is a small percentage of the total price. After that, your monthly interest premiums will be calculated based on the price of the car minus the down payment.
Research All Your Financing Options
There are dozens of car financers vying for your business. Different vendors will offer different interest rates, financing terms, and incentives.
Individuals with good credit scores may be able to secure great financing rates directly with the dealership. Just make sure to do your research before signing on the dotted line.
If you don’t have a good credit score, it may be even more important to do your research. Online lenders offer great deals, but you can also try various banks. Try to get as many quotes from different lenders as possible and compare the numbers.
Compare Your Financial Options
Don’t just go for the cheapest option. Look at other factors of the loan, such as interest rates that you will be paying over the life of the auto loan, the repayment term of the loan, and any processing fees associated with the loan.
A lower interest may not be such a good financial decision if you’ll be making payments on it for a longer term.
Pro tip: It is advisable to make a high down payment to reduce the term of the loan for maximum savings. This will help you save more money in the long run.
Apply for Financing
Once you have found the ideal lender, you can apply for pre-approval. This can be done by visiting the websites of online vendors or going to the actual bank itself.
Note that applying for various lenders runs the risk of lowering your score. Whenever a lender runs a hard query against your account, it will slightly lower your credit score. Some credit bureaus may count all of those hard inquiries as a single inquiry. But it’s better to be safe than sorry and only apply for a loan when you’ve found the most suitable option.
You will have to provide some essential information to these vendors, including your name and address, as well as answer a few questions related to your employment history and financing. Applications for online loans are easier to process compared to bank loans. In some cases, you may have to visit the bank in person to apply.
Pro tip: Learn about any prepayment penalties that may apply if you try paying off your loan early. Many lenders have an incentive to keep you locked into your loan for the entire term and may charge extremely high prepayment penalties. Do not go through with a lender if they are charging beyond what is reasonable.
Go to the Car Dealership
Once you’ve done your homework and have a pre-approval with you, go to the car dealer and pick your favourite vehicle. The car dealer may try to offer other options, make sure you try to find one that is more affordable.
If you can’t find a better deal, then go ahead with the purchase of your current car since you’ve done all your research about how much you’ll be paying.
Recommended: Set Up Automatic Payments
Once you have secured the finances for your car, it is important to stay current with your account and make all your payments on time. Set up automatic payments so you won’t forget missing a payment. Timely payments are important in order to maintain and improve your credit score.