Important Things to Do Before Applying for A Car Loan
Figure out Your Budget
Step inside a dealership, and a salesperson will ask you about your monthly budget. That’s smart on their part. Because if they know how much you can spend per month, they’ll try to sell you the most expensive car they can manage in that amount without considering the term of the loan.
A longer-term may mean a lower payment, but you’ll pay a lot of those monthly payments and pay a lot of interest too. So always figure out how much you want to spend totally on the car, i.e., only negotiate the full amount and not the monthly payment. And, of course, explore options with multiple dealers.
Check Credit Scores and Reports
Always check your credit report before you start the loan application process. If your credit is poor, you may have to pay higher rates for the loan. It makes more sense to work on improving your credit and getting any errors in your report corrected and then applying for a loan. If your credit score is good, then you can use that to your advantage and negotiate better terms for yourself.
After you know your credit position and how much of a loan you can afford, start shopping for rates. Apply to banks, credit unions, and online lenders first. Visit their websites or call them and ask for a quote. Credit unions are known to offer better rates than big banks, so if you’re a member, or have access through your employer, or a professional organization, use it.
Once you find a lender with favorable terms, get preapproved for a loan. If you’re applying for preapproval with multiple lenders, then ensure you do so in the same two week period so that it doesn’t affect your credit score. And you don’t have to take out the full amount you’re preapproved for; you can take out a smaller loan. But you will have the advantage of negotiating with the seller as a cash buyer. And the car dealer may even try and offer you better terms than you’ve already got.
Use these steps to get the best terms for a car loan and save in the process.