An automobile you can use whenever you want is a must unless you reside in a region with good public transportation. When it comes to getting to and from the places we need to go for work, errands, and social events—unless you can walk, a car is your best bet.
Since cars are among the priciest purchases you can make, getting a vehicle loan is usually the first step in purchasing one.
How to Finance a Car?
1. Check your credit score
When financing a car, your alternatives will be much more diverse and competitive if you have a higher credit score. This is true of virtually every aspect of the world of finance. You can find out your credit score by visiting a website such as Credit Karma.
If your score is from very poor to fair, you will not have access to offers with lower interest rates. If your credit score falls within the range of very poor to fine, you may want to think about improving it before applying for auto financing so that you have access to offers with lower interest rates.
2. Figure Out Your Budget
Establishing a financial limit for yourself is prudent before going car shopping. After all, it is a waste of time to consider purchasing a sports car when your budget will only allow you to get something of the regular sort.
If you already have a car, you might want to consider upgrading to a newer model with payments comparable to the ones you have now. If this will be your first car, reviewing your monthly budget item by item is an excellent idea to determine how much money you can afford to divert from other things towards a monthly car payment. If this is your first car, reviewing your monthly budget item by item is a good idea.
Be conscious that if you finance a vehicle, you will almost certainly be responsible for paying interest and other costs, and you should factor this into your budget planning.
3. Learn the Car-buying Lingo
You’ll need to know a few terms if you’re financing an automobile. The finance charge, also known as interest, is the price you pay to borrow money from a lender. You’ll have to pay this extra monthly installment on your loan.
Another item to become familiar with is the length of time it will take you to pay off your car loan. A long-term loan typically costs more in interest over time.
To buy a car, you may have to put down a deposit, which is a lump sum of money you pay upfront. After that, your monthly payment is determined by subtracting the vehicle’s purchase price from the amount you paid in advance (plus interest, of course).
4. Pick From Two Options: Getting a Loan or Getting a Lease
Traditional loans and leases are the two primary ways to obtain financing for your new or used vehicle. Leasing an automobile is similar to renting because you must return the car to the dealership after the lease period.
Consider how many miles you’ll drive the automobile before signing a lease. Most leases impose an extra price for each additional mile driven over the contract’s allotted amount. Leasing may demand a down payment, extra lease-related costs, and even a security deposit if you decide to go this route. The dealership may assist you in better understanding the specifics of leasing if you’re interested.
While third-party lenders like banks and internet financing companies offer automobile leases, the more common way to get one is through the dealership where the vehicle is being sold or picked up from. For example, depending on whether you’d want to drive an older model or something brand new, different dealerships may offer varying lease options for you to choose from.
To locate the best leasing package, it’s recommended to contact around to multiple dealerships once you’ve decided on a car. Customers with more substantial credit scores, just like with traditional loans, will typically be able to take advantage of better leasing rates and packages.
5. Research Financing Options
Do your study if you choose a standard loan vs. leasing. Different companies provide different incentives, interest rates, and financing terms.
If you have good credit, the dealership may offer you great financing rates directly (although you should still conduct your homework beforehand). If you have bad credit, explore your choices carefully.
Online lenders like LendingTree and CarsDirect are a solid start, but national banks like Bank of America, neighborhood banks, and credit unions are also options. You can compare quotes from several lenders.
6. Compare All the Numbers, Not Just Monthly Payments
Keep your monthly budget in mind, but also consider other aspects like the loan length, the interest rate you’ll pay, and any additional costs that come with the loan before making a final decision on which loan to accept.
There is no guarantee that a loan that costs $50 less per month is better overall if you want to pay it off for a more extended period. For the most part, you’ll save more money over time if you can afford a larger down payment and a shorter loan term.
7. Apply For Financing
After finding your appropriate loan, apply for pre-approval online or through a bank or credit union. You can apply for multiple loans to discover which lender offers the most excellent deal, but you may hurt your credit.
Every hard inquiry from a lender will lower your credit score. However, some credit agencies consider several queries for the same sort of finance (i.e., an auto loan) as comparison shopping and treat them as one hard inquiry. Be careful and deliberate; only apply for financing when you’ve found a good bargain.
You’ll need basic information for these applications, but you’ll also be asked about your income and employment history. If you can apply online, it may be easier, but if you prefer a bank, contact me beforehand to check out what information you need.
8. Bring Your Pre-approval to the Car Dealership
Once you’ve done the math, researched, and gotten pre-approved for the best financing, head to the dealership to pick out the automobile of your dreams (or one that’ll get you where you need to go).
The vehicle dealership may try to offer you another alternative with your pre-approval, but they’ll need to beat your current offer. If the dealership can’t find you a better bargain, you’ll be ready to buy your automobile since you’ve done the legwork.
9. Set Up Automatic Payments
Set up automatic payments with your lender, so you never miss a payment to prevent damaging your credit score.
Frequently Asked Questions
Is It Better to Finance a Car Through a Bank or Dealership?
The primary benefit of going directly to your bank or credit bank is that you will likely receive lower interest rates. Dealers tend to have higher interest rates, so financing through a bank or credit union can offer much more competitive rates