Getting an auto loan does not have to be a difficult task. There are many resources available to help you choose the best auto loan for your needs. Since an auto loan is typically the largest monthly expense for a household, after your housing payment, it is important to do your research and seek out the best loan that suits your needs. Here are some tips to help you get an auto loan the right way.
Review Your Credit Reports
Before you begin your search for an auto loan, it is best to check your credit reports at the three main credit bureaus to see what information has been added to your report. Correcting errors before applying for a loan could raise your credit score considerably and save you hundreds of dollars in interest payments over the life of the loan. Under federal law, every consumer is entitled to one free credit report every 12 months from each of the three major credit bureaus. Obtain copies from all three, since the information can vary significantly among them.
Determine What You Can Afford
There are many costs that must be taken into consideration when shopping for a vehicle. You must consider the amount of the car, the routine maintenance costs, the cost for gasoline, and the cost for insurance and licensing. The amount that you borrow will be the price you pay for the car plus any options you select minus your down payment and the value of any trade-in. The monthly payment required for the loan will depend on the term of your loan, the interest rate charged, and the amount that you borrow.
Obtain Quotes From Several Lenders
There are a large number of loan products available to help you purchase the vehicle that you desire. Make inquiries at several different lenders to find out about the types of loans they have available and the Annual Percentage Rate for which you would qualify. If you can, get pre-qualified by the bank or credit union with the best terms for a specific loan amount. If you have been pre-approved for a bank loan, you can keep the financing decision separate from the negotiations on the price of the car, allowing you to possibly get a better price.
The Trade In
If money still owed on the car that you plan to trade in, you may want to consider waiting to purchase the new auto until the existing loan have paid off. Be cautious about offers to “pay off” anything you owe on a car to be traded in. Instead of being paid off, the amount you owe may be rolled into the new loan or deducted from your down payment, resulting in an increase in your monthly payments and in the total cost of the loan, after factoring in the interest.