One major way to get behind a vehicle’s wheels is first to arrange the financing for it. An auto loan is the money you borrow from a lender to purchase a car. You must repay the loan in fixed installments over a set period of time, along with interest charged on the borrowed funds.
Auto loan terms vary, so it’s critical to understand the process to obtain the best auto loan possible. Here is the ultimate guide to auto loans.
How Auto Loans Function
There are various types of auto loans, including dealer financing, loans from banks or credit unions, and loans from online lenders. Your credit score, loan amount, and vehicle preferences determine your best loan option.
– Dealer financing
Dealer financing is the simplest loan type because you can shop and finance at the same place. If you go through a certified dealer, they will check your credit score. A good credit history will help you qualify for a manufacturer’s promotional rate.
Dealer financing has a higher interest rate. When a dealer matches you with financing, they often take a commission.
– Bank or credit union auto loan
If you don’t want to use a dealer to finance your auto loan, you can apply at a traditional bank or credit union. However, it may take longer than going through a dealership. Expect the process to take between one and seven business days.
– Online auto loan
You can apply for an auto loan online as well. Even though these loans are often handled remotely, the procedure is similar to getting a car loan from a bank or credit union. It could be approved in as little as one business day.
How to Apply for A Car Loan
The key to obtaining an auto loan is to be financially prepared and shop for the best rates. You should also visit a dealership that offers a preapproved loan option.
– Do your research
Don’t put off learning about auto loans until you’re ready to buy one. Begin with the fundamentals, such as your credit score and current financial situation.
Determine which car you can afford by first understanding your budget. Examine your credit reports: Delinquencies and other non-mortgage debts aren’t the only things that can damage your credit.
If possible, pay down delinquent accounts and dispute any errors on your credit reports. You should also look into the average interest rate and monthly payments for various car brands and models.
– Obtain preapproval
Preapproval entails filling out forms with banks, credit unions, or online lenders to get an idea of the rates they can offer you. Getting preapproved for a loan before going to the dealership gives you more bargaining power.
Consider using a co-signer if you need help getting preapproval for an auto loan. Your co-signer should have good credit and a consistent source of income to give you the best chance of qualifying for a loan
– Shop for a vehicle
After you’ve obtained a loan, it’s time to look for a car. Use the numbers you’ve been given, such as the interest rate, monthly payment, amount, and loan term, to guide your comparison shopping.
– Close the deal
Inquire about the dealer’s financing options as soon as you find the car you want, then compare them with the deals you’ve already secured. Don’t rush to sign the paperwork. Read everything before you sign. Be wary of dealer add-ons that you don’t require.
