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5 steps to get a car loan

5 steps to get a car loan

When shopping for a new car, the financing process can be intimidating. But if you arm yourself with knowledge and understand the different steps, you can make the process much less daunting.

1. Determine your car loan budget

The question of how much car you can afford is not an easy one, especially when you consider that buying a car can be a major investment. However, the best answer to that question is based on your budget and your ability to repay the loan. Consider these three main steps.

  • Determine your current and future financial picture. Look at your current earnings and how likely you are to continue your current job. If you have a big change ahead of you, keep that in mind.
  • Consider the full cost of ownership. Take into account the maintenance costs, fuel costs and insurance costs you incur.
  • Evaluate other costs. To make a financially sound decision, you’ll want to keep a budget and understand what your out-of-car expenses are, just like other debt payments.

2. Check your credit report

The first step to getting approved for a car loan is to check your credit report for errors. Errors such as duplicate accounts, missing payment history, or misspelled names can all lower your credit score and cause you to be declined.

Check your credit score

A credit score can usually be obtained for free from your bank. This is usually your FICO credit score and is updated monthly.

However, not every credit score is on the FICO scale. You should pay attention to the score type you get.

Check your credit report

Your credit report elaborates on your credit score. It lists all the bills you’ve had in the past seven years, including payment history, how much you owe, and whether you’ve been sued or declared bankrupt.

Credit reports come from the three major credit bureaus: Equifax, Experian, and TransUnion. While you can usually get these reports for free only once a year, you can currently get them for free every week using AnnualCreditReport.com.

Check for errors

Errors, such as accounts being listed as paid off when they aren’t, or late payments that are reported incorrectly, can all affect your credit score. Check your report to make sure everything is correct.

Make sure to request any changes 30 days or more before you sign up. It may take up to the full 30 days to respond to your request.

Do not open new accounts

Opening a new credit account will temporarily lower your credit score. It is better to wait to open additional accounts until after you get your car loan, if possible.

Limit your credit card usage

A high credit card balance can significantly affect your credit score. If you can help it, avoid adding revolving credits and stick to cash payments.

3. Apply for pre-approval of car loans

You can have the pre-approval process done before going to the dealer. In fact, when you step into the dealer’s finance office, chances are you will be offered a worse rate than the pre-approved rate. This is because dealers add a commission to the rates offered by the lenders they work with.

Preapproval is also a great way to know exactly how much you can borrow. You can also negotiate as if you were buying cash once you get to the dealer.
It is recommended to get pre-approval from at least three lenders to ensure you get the best deal.

4. Shop for your car

The next step is to actually go shopping. Find different vehicles that meet your needs and go to car dealers to test them. Talk to sellers and compare your options to understand what’s out there, keep your total buying power close to the chest as it’s key to negotiation.

However, it is important to do the research before stepping on the dealer’s property. Sites like Edmunds and Kelley Blue Book allow you to compare different vehicles and how much they cost based on make, model, equipment, and even your location.

If you’re looking to trade in your current car – especially if you’re looking to buy a used one – check out online services like Carvana and Vroom. You can get a better deal than from a dealer.

5. Take out the car loan

Once you have found the right car loan, confirm the terms of the loan. The lender may ask you to submit all required paperwork, including proof of insurance, before agreeing to the terms and signing the documents.

  • Sign the car loan documents. If you agree to the terms, sign the documents. If you have a co-applicant or co-signer, that person must also sign the car loan documents. If you have a car loan from the dealer, the dealer will provide the car loan contract with the lender’s contact details.
  • Get the vehicle title and registration. You will need to have your vehicle title sent to the lender and the vehicle registration updated in your name, the dealer will usually arrange this if you buy one. If not, work with the seller and DMV to update the necessary documents. You also need proof of insurance.
  • Take possession of the vehicle. After you get the car loan and complete the sale, you can take possession of the vehicle.

it comes down to

When shopping for a new car, the financing process can be intimidating, so arm yourself with knowledge. And if you’re not sure how much you can afford, check your credit score before visiting the dealer.

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