Buying a car is said to be the second largest purchase you’re likely to make in your lifetime! The average price of a new car is $34,000. If you’re planning to buy a car soon but you don’t have sufficient funds yet, don’t worry. There are several feasible options available, one of which is a personal loan. That’s right! Using a personal loan for a car purchase may be a viable option for you, and in fact, many personal finance experts recommend this route.
Here are six tips to help you make the most of your loan and purchase the perfect car:
1. Choose wisely
Before making any car purchase, it’s important to compare your loan options to find the ones that offer the lowest possible interest rate and a suitable repayment period. It doesn’t matter which company you choose, as long as they offer personal auto loans, competitive rates, and flexible terms. When in doubt, take advantage of personal loan comparison tools, which can help you simplify the process and provide real-time quotes from multiple lenders. This can help you find the best available deal in a matter of minutes. Some popular sites that offer this service are LendingTree and NerdWallet.
2. Find out the amount for which you qualify before running calculations
It’s important to determine the loan amount for which you can qualify for before doing your calculations, which will help prevent you from becoming tempted to increase your purchase and loan amount unless absolutely necessary. Your next step is to find a car price that falls within the acceptable range. Use a personal loan calculator to determine how much money you can borrow from a lender while not eating into your total monthly debt payments.
3. Get pre-approved for a loan with an accredited lender or dealer
Keep in mind that being ”pre-approved” is different from being “pre-qualified” because this is based not only on your income level and employment status, but also includes a credit check. Pre-approval comes with an official offer letter that includes details about the interest rate and personal loan amount for which you may qualify. Since personal loan deals can change daily, the best way to determine the amount of your personal loan is by asking a car dealer or personal finance company to do it for you. This will ensure that you get the best possible deal and interest rate.
Also be aware that not all dealerships offer personal loans for cars. Make sure you only work with a dealer who provides this option. Additionally, keep in mind that personal loans are generally divided into two groups: secured and unsecured. A “secured” personal loan requires security (or collateral) to back up your loan amount, such as your home or vehicle, while an “unsecured” personal loan doesn’t require any assets.
A great advantage of buying a car using a personal loan is that dealerships are typically willing to negotiate personal loan interest rates. Be sure to do your research before heading out to the lot! Look for coupons or rebates that might help you find the best deal for your new car.
5. Remember that personal loans have shorter repayment terms
Personal loans usually have shorter repayment terms than conventional loans, since they don’t require any collateral for approval. This means that you typically won’t need to worry about a down payment and you can enjoy lower monthly payments. If you are considering obtaining a personal loan as opposed to a cash advance, it’s probably best to opt for the personal loan, as it has more flexible terms of repayment.
Another benefit of choosing a personal loan over a cash advance for your car purchase is that a personal loan provides borrowers with the opportunity to rebuild their credit scores over time. Personal loans are reported to the three major credit bureaus each month, giving borrowers a chance to demonstrate that they are responsible for their finances. Most personal loan providers will report your payment history to all three credit bureaus annually, but some may do it more frequently, depending on the lender.
6. Pay off your loan in full before the due date if possible
If you can afford to pay off your personal car loan early, do it! Making extra payments up front will allow you to pay less interest over time because you’ll reduce the overall length of your loan term.
Obtaining a personal loan for a car purchase is a great option if you’re looking to buy a car but don’t have adequate funds. If you want to explore your financing options or if you’re looking for a quality second-hand car, we at The Auto Warehouse can help. We can get you approved fast and easily! Give us a call for more information.