Buying a car is a big deal. If you don’t have the cash required to buy the car, you’ll likely have to get an auto loan. While the loan application process may seem daunting, the fact is that it’s really quite simple. Here’s how to go about it.
Always start by checking your credit score and report. If you notice something wrong in your report, then get it corrected.
Apply to Multiple Lenders
Next, apply for a loan at large national banks, local community banks or credit unions, and online lenders that specialize in auto loans. Compare these quotes, the APR, loan term, down payment, and taxes and fees.
Once you find a lender with favorable terms, it’s time to apply for preapproval. Apply to all preapproval lenders in a two-week window to minimize the impact on your credit score. Doing this will put you in a strong negotiating position with the dealer.
Set Your Budget
Your preapproved loan offer will tell you the maximum amount you can afford. You can borrow less as well. You’ll need an additional10% to cover taxes and fees. Using the offer, your down payment amount, current car trade-in value, and lending terms work out an affordable monthly payment.
Find a Car
Now, depending on the conditions of your loan offers, find a vehicle that fits all requirements. You’ll probably have 30 days until the loan offer expires. Ensure that you don’t stretch your budget at all while choosing a car.
Check the Dealer’s Offer
After test-driving the car, sit down with the dealer and ask for their best loan offer. If your preapproved offer is better, tell them about it and ask them to beat it. If they can, great. Otherwise, negotiate on the total price of the car and close the deal.
Finalize Your Loan
Check the dealer’s contract for sneaky things like hidden fees, a longer loan term, add-ons you didn’t want, and an early pay-off penalty. Walk away if they refuse to remove these things. Close the deal once you’re satisfied.
Pay on Time
Remember to make all your payments on time. You’ll improve your credit score and get a small break on the interest rate.