If you’re planning on buying a new or used car you will most likely want to take out an auto loan. To get a loan for a car you must first qualify for one. There are a few things that can have an effect on whether you get a loan or not. If you have had late bill payments, credit mistakes, or you have low income then you might have a difficult time qualifying for a loan. You may still be able to qualify for an auto loan even if your credit isn’t that good.
A good way to qualify for a loan is to prepare ahead of time. You should limit your purchases with credit cards. You should also pay off any remaining balances before you apply for the loan. Doing this will boost your credit rating and lenders will see that you are responsible with your money. Hold off on making payments with your credit card until you receive the loan or else it could hurt your chances of getting the loan.
Make sure the car you want to buy is one that you can afford. When picking out your car you should also make a budget that will include your monthly insurance payments on the car. Lender don’t normally want to grant loans to people who plan on using over 60% of their monthly income on the car loan, other bills, and their living expenses. Lenders like it when a person is willing to put up their own money so it’s is good idea to save up money to use as a down payment for the car.
After you have found a car you can afford, made a budget for it, and saved up money for a down payment, your next step is to find a lender. You can find lenders through banks, credit unions, online lenders, and auto finance departments. You best bet is to try your local bank. Your local bank will want to work with you more if you are already banking with them and they already know you financial history. Local banks also offer the lowest interest rates normally. If you belong to a credit union you should also try there, they also offer very low interest rates.
If you cannot get a loan at the bank then your next course of action would be the finance department at the dealership where you want to buy the car. The finance department works with a number of lenders to find one that will grant you a loan. The only downside is that you may have to pay a higher interest rate.
Your last option for getting a loan would be to shop online. There are many lenders online that will want to work with you. Online lenders compete against other online lenders and traditional lenders so they will be able to offer you a better deal even if your credit is poor. Before you choose an online lender you should research them to find out if they are legitimate. You also need to read all the contracts to make sure they don’t have any hidden fees.
Your interest rate will be higher if you credit history isn’t very good. You can make the rate go down if you provide larger down payments or pay off the car sooner than the terms of your original loan. Don’t risk taking out a loan for two or three years if you aren’t positive that you can pay it off. You can take out a loan for five years or more if you need to. This will cost you more interest but you will still be able to make a payment each month.
You should always research your options and apply for a few loans before qualifying for an auto loan. You should prepare by getting your finances straightened out and picking a car that you can afford. Remember that getting a car loan is a time consuming process and you should be patient and try different lenders.
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This post was written by Chris Channing on May 13, 2008
