A car loan is one of the best ways to affordably purchase your dream vehicle. Here are some essential steps to make the process of applying for a car loan simpler and cheaper.
- Check your credit score: Your credit report, score, as well as your income are used by lenders to determine just how much you qualify to borrow — and at what interest rate. If something is wrong with your report, like fraudulent activity, you could be turned down for a loan or charged a very high-interest rate. So, make sure to check your credit report before you apply for a car loan.
- Compare loan offers: Once you’ve checked your credit, it’s time to look at auto loans and lenders. You can start the process by comparing quotes from multiple lenders in case one or more can give you a potential rate break with lower costs or better terms. Your own bank (or even a credit union) may give you a preferred rate, so make sure to consider that avenue as well. You’ll also want to consider financing through dealerships and online banks.
- Get preapproved: A lender may offer you a prequalified or preapproved loan, depending on your credit situation. Prequalification is an educated guess as to how much you might be lent based on some basic information you provide, such as income and credit history. Preapproval is a lender’s commitment, in writing, that you are eligible for the amount of money you are looking to borrow.
- Set your budget based on your loan offer: The offer to finance your car purchase will indicate the maximum possible loan amount you can borrow. However, don’t buy a car that costs exactly that sum. Given that taxes and fees are estimated by the dealership, it’s best to have some extra money on hand so you can easily pay for these costs.
- Buy your car: Now that you have your loan offer, you can start shopping for cars. Make sure to take your time to do the necessary research and compare a few different cars before you zero down on your dream vehicle. Once you pick a car you like, you can finalize the loan terms and conditions.
