Purchasing a new car can come with a hefty price tag. However, what many people don’t know is that it’s possible to finance your vehicle purchase through a loan. If you’re considering taking out a loan to buy a new car, it’s essential to understand the ins and outs of the process, and the various qualification requirements that come with the territory
Many people find the process of qualifying for a car loan to be confusing and sometimes frustrating. But don’t let that stop you from getting behind the wheel of your dream car. Here are eight things you need to know about qualifying for a car loan.
Your credit score is key
When it comes to being approved for a loan, your credit score is one of the most important factors lenders consider. A high credit score will help you qualify for a lower interest rate, while a low credit score could lead to higher rates and may even disqualify you from certain loans altogether. If your credit score has room for improvement, start by paying off any outstanding debts and make sure you’re on time with all of your payments. It’s best to take steps to improve your credit scores before you begin the loan application process.
You need to have a steady income
Another vital component that factors into your approval for a car loan is having a steady source of income. Lenders want to be sure that you will be able to afford your monthly payments. They’ll look at your income, and also your debt-to-income ratio. If you don’t have a full-time job, you may still be able to qualify for a loan if you can show that you have a reliable source of income.
Save for a down payment
Your down payment is the money you’re able to pay upfront toward the purchase of your car. The amount of your down payment will affect the cost of your monthly payments, and the also interest rate on your loan. The higher your down payment amount, the lower your monthly payments and interest rate will be. If you can, it’s advised to save at least 20% of your car’s purchase price before you start shopping for loans.
Get pre-approved for a loan
If you’re not sure what you can afford to spend or the types of interest rates for which you’ll qualify, it’s important to get pre-approved for a car loan before you start shopping. This will give you a good idea of which options are available to you, and help you determine how much you can afford to spend. Pre-approval also shows lenders that you’re serious about buying a car, and that you’re likely to be approved for a loan.
Compare interest rates
One of the most important things to do when shopping for a car loan is to compare interest rates. Interest rates can vary significantly from one lender to the next, so it’s important to shop around. Get quotes from several different lenders, and compare their APRs (annual percentage rates).
Consider your credit history
Not all lenders offer the same interest rates or terms. Some lenders may be willing to offer you a lower interest rate if you have a good credit history, while others may be more concerned about your current debt-to-income ratio. It’s important to find out the terms and requirements for each lender before you apply.
Be knowledgeable about the terms of your loan
Before you sign any paperwork, it’s essential that you understand the terms of your loan. If anything is unclear, ask questions. Make sure you know key points, such as:
- Are there any prepayment penalties?
- What happens if you miss a payment?
- How long will your loan last?
These are just a few of the things you need to know before signing on the dotted line.
Get help if you need it
If you’re not sure how to go about qualifying for a car loan, or if you have any questions about the process, don’t be afraid to ask for help. Talk to your bank or credit union, or consult with a car dealership. These professionals can answer your questions and help you navigate each step of the loan application process.
Qualifying for a car loan can seem like a daunting task, but with these eight tips, you’ll be well on your way to getting behind the wheel of your dream car.
Our goal here at The Auto Warehouse is to provide reliable transportation to our customers. Low credit scores? Bad credit, or no credit? No problem. The engine of our business is integrity and respect. Adhering to this philosophy is how we have achieved our impressive reputation of “buying here and paying here” in recent years, and it has made us the best qualified dealer selling used cars in Aurora, Chicago, Cicero, Melrose Park, Waukegan, and most recently, Milwaukee, WI. We promise to always work to exceed your expectations. Trust us with your next car purchase.