Are you looking to purchase a car? In today’s hustling routine, the need for personal transport has become inevitable. After all, no one has time to wait for hours on the bus or subway station. However, buying a car isn’t as easy as it may sound. For starters, brand new cars come with a hefty price tag, making them unaffordable for most people. Likewise, second-hand vehicles have their fair share of repair issues – oil leakages, rusty engines, and whatnot. Fortunately, there’s always a way out.
People can get their hands on a brand-new car in monthly installments – all thanks to car loans. Every financial institution and bank is offering auto loans at minimal interest rates. But unfortunately, the entire concept of car loans seems daunting to many individuals. Some don’t have collateral, while others aren’t willing to go through the lengthy application procedures. In reality, getting an auto loan is pretty straightforward.
All you have to do is find the best lenders, check your credit score, and ensure you can repay timely. Also, you have to look for a trustworthy dealer to get the vehicle at the best possible price. If you are still uncertain about this, have a look below. Here is a detailed guide on how you can seek a car loan.
1. Shortlist the Lenders
Unsurprisingly, every bank offers an auto loan, but the interest rate varies. Therefore, conduct a market survey and talk to different lenders to get the best rate. You can begin by getting quotations from large national banks. They might have stringent requirements but offer the lowest possible interest rates. Otherwise, look for local community banks and credit unions. The interest rate will be a bit higher, but loan approval would only take a couple of days.
Besides this, you can even research online. Depending on where you reside, search for auto loans. If you are in New Zealand, look up low interest car loans services NZ to find lenders within that region. In addition to banks, you will come across dealership financing and online lenders willing to offer you a car loan.
Once you have shortlisted a few lenders, compare their quotes with one another. If a commercial bank offers a better rate with extensive paperwork, weigh its pros against a credit union. It’ll help you make a viable decision, ensuring you pay minimal interest.
2. Check Your Credit Score
The second step for acquiring an auto loan is to check your credit score. It ranges from around 300 to 850 based on your borrowing history. People with a clean record are likely to score between 600-850. Similarly, individuals who delay payments will have a lower score. Lenders critically assess this score to determine if you can repay timely or not.
Therefore, get your credit report from any credit bureaus and evaluate it carefully. It will give you all your credit and payment history information, showing where you stand financially. In addition, it will also help you spot errors and find areas to improve your credit score. Remember, if you will go to a lender with a poor credit score, the chances of getting the loan approved will reduce. Therefore, wait until your credit score is 500 to get an auto loan at the best interest rate.
3. Find Your Car
Now that you have lenders and credit scores sorted, it is time to pick your new ride. For that, determine the maximum car price according to your car finance. You can use that money for the down payment to reduce the financial burden later. However, before you make up your mind, you have to be careful about a few things.
- Some lenders exclude certain car manufacturers or types of cars from financing. For instance, most banks don’t give loans from electric vehicles. Likewise, individuals cannot get more than three million in car financing in some countries.
- At times, lenders have specific requirements. Perhaps, they might require you to shop through a particular network of dealers.
- Be aware of the lender requirements if you buy a car from an individual lender.
- Most banks and financial institutes give borrowers 30 days to use the loan. So, if you eventually run out of time, you will have to extend the offer.
4. How Much Do You Want to Borrow?
Once you have selected your car, determine how much money you want to borrow. Some people pool in their savings and borrow the remaining, whereas others seek full financing. Giving away some cash in down payment is always a great idea since it reduces monthly payments. Here are a few factors which you may consider.
- How much can you pay every month? Even though this entirely depends on your gross salary, make sure the monthly payment isn’t overwhelming. Preferably, it shouldn’t be more than 40% of your gross income.
- For how long do you need the loan? Longer tenures reduce the amount you owe each month. However, it keeps you in debt for a long time. Depending on your financial standing, you can pick the tenure but try to pay off the loan as soon as possible.
5. Finalize the Loan Terms
After extensive research and hard work, you have to finalize the loan. First, go through the entire contract before signing to ensure there isn’t anything sneaky. Banks sometimes include sales tax, documentation fees, and registration costs that aren’t disclosed earlier. It increases the loan cost, draining more bucks from your pocket. Thus, make sure you are aware beforehand.
Moreover, check for the add-ons you didn’t ask for, such as gap insurance. After all, you can get this cheaper elsewhere. Most importantly, you must ensure the contract doesn’t have any early payoff penalty. It will allow you to pay off the loan before the tenure ends without extra charges.
Besides, if you purchase a car from a private seller, they might ask for cash for a cashier’s check. Ensure the lender is aware of this transaction and that you get the paperwork signed properly. It will save you from unnecessary trouble, helping you secure a fair deal.
Truthfully, buying a car is an enormous decision. Not only you’re investing a lot of money, but your entire credit score is at stake. Therefore, shop around to find the best lenders and get yourself the best possible terms. But most importantly, don’t borrow beyond your repayment capacity; otherwise, you will drown yourself in the debt trap. You must carefully assess your financial position and find the lender offering the lowest interest rate.