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Monday, 15 January 2018

How to Get a Car Loan: Your Essential Guide

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Thinking about taking advantage of the end of year car deals? But financing a car seems like a complicated process? It doesn’t need to feel that way. We’ll break it down into five straightforward steps, covering everything you need to know about how to get a car loan, from sketching out your budget to handling the final paperwork.

How to get a car loan: Your 5-step guide

1. Check your credit

Before you submit a loan application or visit a dealership, check your credit report and credit score. You’ll want to examine your credit report from one or more of the major bureaus (Experian, TransUnion and Equifax) to check for any errors or inaccuracies. If something looks wrong, get it corrected ASAP.
How can you access your credit reports and scores? By federal law, you’re entitled to a free copy of your credit report ever 12 months from each of the three reporting bureaus. Many online services also offer free access to one or more of your credit scores—but keep in mind, the score you receive might not match the score used by a potential lender because there are many different scoring models. Nonetheless, it’s important to have a good idea of where you stand.
Why does your credit profile matter?When potential lenders need to assess how responsible and reliable you are as a borrower—in other words, how creditworthy you are—they often look at your credit report and credit score. If you have a great credit profile, lenders are more likely to offer you loans with favorable terms, like a lower interest rate, longer term and/or larger amount.

2. Understand your budget guidelines

How much can you comfortably afford to pay each month toward your auto loan? How large of a down payment can you make? What length of repayment term are you targeting? Once you have these figures in hand, check out a car loan calculator to estimate the corresponding loan terms. Be sure to factor in insurance, taxes and other fees.
For example, say your target monthly car payment is $250 and you’re putting down $10,000 with no trade-in. For a 48-month loan at 4.0% APR, you could likely afford a car with a sticker price of about $18,000 to $21,000. If the APR on your loan is more like 7.0%, the sticker price will need to be closer to the $17,000 range in order to translate to a monthly payment of $250. Learn more about what impacts your average monthly car payment here.

3. Shop around for financing

While it might seem convenient to get your financing at the same dealership where you buy a car, you won’t always get the best terms: Dealer-arranged financing often comes with higher interest rates.
Check out offers from multiple lenders, including traditional banks, credit unions and online lenders. You can get pre-approved, which means you’ll know how much you can borrow and at what terms. Pre-approvals are often good for 30 days.
Here’s what you should know about the pre-approval process:
  • Have your information in order. Most lenders will require your date of birth, Social Security and driver’s license numbers.
  • Understand if it’s a hard inquiry on your credit report when you apply. Many lenders use a hard credit inquiry, which can impact your credit score.
  • Get it done within 14 days. If your loan applications involve hard credit inquiries, make sure you submit them all within a 14-day period. Within this time period, all inquiries for auto loans will be counted as a single inquiry.

4. Head to the dealership (finally!)

Now that you’ve picked the best loan, it’s time to pick the car. When it comes to negotiating the sticker price, research effective techniques, like shopping during off hours and finding a salesperson with whom you’re comfortable.

5. Sign on the dotted line and begin making payments

Once you’ve locked in the terms of the car purchase, you’ll review the sales contract and handle your trade-in if needed. You’ll also complete the paperwork to finalize your loan, which often includes providing information about your new car plus proof of income, residence and insurance. Lastly, you’ll start making monthly payments, either online or via mail.

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