Read on for tips on finding a car loan that puts you in a car you need (and want) and helps you build credit and maintain financial stability. If you cannot qualify for a car loan, or are offered a loan with a high interest rate, consider getting a cosigner for your loan, saving for a larger down payment, or taking time to build up credit before buying your vehicle. If the loan is too long, consider choosing a less expensive car, making a larger down payment, or paying more every month.
In addition to having a shorter loan, you may be able to avoid the situation where you owe more than your car is worth by making the money up front. If the vehicle you wish to purchase costs less than the lenders minimum loan amount, and you cannot afford to make cash payments, a small personal loan may be a good alternative. If you have poor credit reports and scores, and cannot afford to wait for the car, you might still be able to qualify for a car loan.
If your credit needs some work, and you are struggling to get approved for a car loan, a Buy Here, Pay Here dealership might offer an option. If you have great credit, and you know it, you can often get a better loan rate directly from the dealership (which acts as a broker to several lenders).
The lower your credit, the more important it becomes to shop around and make sure that you are getting the best rates that a bank is willing to give you. If your credit is rock-bottom, you are probably thrilled you are even getting the loan in the first place, so you are not going to be willing to ask whether a lower interest rate is available. You may need to really speak with someone over the phone or in person to get an offer for a loan.
Most dealerships and auto lenders can let you know pretty quickly if you are going to be eligible to borrow, especially if you already prepared your financial information before walking on to the lot. Verifying your credit allows you to begin shopping around for a car loan armed with a better understanding of whether you will be approved for a loan, and, if so, what kind of loan amount, interest rate, and terms you may be getting. Your credit factors in your history of borrowing from other lenders, and indicates if you have borrowed in the past and have paid off those loans on time.
Unlike conventional lenders, like banks and credit unions, which rely on your credit score to base their auto loan approval, subprime lenders look beyond your credit score and use other factors to determine whether or not you qualify. The credit score needed to qualify for a loan will differ by lender, since each one will have different criteria to approve your loan, and they can use different credit scoring models, like FICO(r) Auto Score 8, which has a range of scores from 250 to 900. Getting pre-approved for a car loan involves filling out an initial application with the lender, who will look at your credit and other financial information. When working with banks, you get a chance to pre-approve several car loans, compare rates, and determine the best deal for you.
A bank can usually get you pre-approved for the amount of your loan and the interest rate, which can improve your power of negotiation with a dealer. Another car finance option is going straight to the dealer, who works with lenders to secure loans for its customers. Dealer loans on new cars are typically subsidized by the manufacturer, according to Consumer Reports, so they may be a good choice for many people with good credit. It is important to keep dealer finance a possibility, but make sure to research auto financing before you decide where to purchase your vehicle.
Before signing the contract and driving away from the lot, spend time understanding the pros and cons of various car loan options, including banks, credit unions, online lenders, and dealerships. Before taking a car loan, it is important to understand what you are agreeing to, how your credit will impact your lending experience, and how a car loan may impact your credit and your overall finances. It is important to look over your credit report before applying for a car loan or visiting a dealership, as this will impact if and how you are approved for the loan.
Improving your credit could increase your chances of qualifying for a car loan with a favorable rate and terms. Making timely payments and paying off your credit card balances can help to strengthen your credit, which will allow you to qualify for a better loan. A history of making timely payments is one of the most helpful factors in your credit report, so you can expect to see a rise in your score once you make six months of credit payments or longer.
It is much more important that you are able to make loan payments comfortably, even when the bank says you can afford more. It is tempting to spread an auto loan out over five or even six years in order to reach more affordable monthly payments, but that means paying much more interest, and almost certainly being underwater on the vehicle for nearly the entire duration of your loan.
Even if you do not choose to take a loan with one of the lenders that Monevo partners with, knowing what rates you are eligible for could help you to be more prepared when it comes time to negotiate with auto dealerships. While qualifying for a car loan with a lower credit score (below 580) might seem difficult, there is a wide network of lenders and auto dealerships that are more than willing to work with lower- and worse-credit-score borrowers. Applying with lenders can be confusing, as some offer pre-qualification, requiring only soft credit checks, and others provide pre-approval, which requires a hard credit check, temporarily taking your credit score down. If you are truly ready to purchase your vehicle, getting pre-approved for a car loan offers a few benefits.
To get pre-approved for a loan, you will have to submit a few personal details to lenders, including your Social Security number, your salary, and a rundown of other debts. If you are an average American, your best option to afford a vehicle is by taking out a loan.
Arming yourself with the right knowledge prior to car-loan shopping, and reading the fine print before signing the dotted line, can improve your chances of getting a good car-loan deal.
