Buying a car is probably one of the biggest purchases you will make, after buying a house. Before you take out a car loan, it’s important you understand exactly what you’re agreeing to, how your credit will affect your loan, and how the auto loan will influence your credit and overall finances.
Determine How Much You Can Afford
Most people don’t have the cash needed to buy a vehicle without additional financing, which is why, when considering the cost of a car, your total monthly expense may be as important as the total price tag.
To determine what you can afford, consider the total monthly costs including car loan payments, insurance, gas, as well as maintenance.
Check Your Credit Scores
You should check your credit scores and reports at least three to six months before your planned purchase.
The score needed to qualify for a loan varies with each lender since they will each have different criteria and may use different credit scoring models.
Shopping for Car Loans
It’s important to look around for the best car loan deal because that may help you come across better interest rates.
When buying a car, it’s also common for dealers to submit applications to many lenders to help you find the lowest interest rate and best terms. You can also do this on your own.
There are many sources that can provide you with an auto loan, including:
Banks and credit unions: Receiving a loan from a financial institution allows you to secure your financing before you go car shopping. Once you’ve found the car you like, you can then use the loan to buy the car from the dealer.
Car dealers: You can choose to secure financing through the dealership where you buy your car. This can be convenient, and provide you with access to special deals and incentives while being easier to qualify for than a loan from your bank.
Online lenders: A number of online lenders can provide you with auto loans that work similarly to direct lending from a bank or credit union. Some websites let you get quotes from multiple lenders by completing just a single online form.
