Very few people can walk into a dealership and have enough money in cash to pay for their new car. Because of this, they need a car loan. This loan can come from a third-party such as a bank or other lending institution, or it can come from the dealership. While you may think that it’s easier to just go through the dealership, know that this is not the only option you have. And in fact, if you get pre-approved for a car loan from a third party first, it will give you more negotiating power and can even get you a really good loan with great terms from the dealership. Choosing which one is best for you will ultimately be your own decision, but having the choice of both is a valuable tool when buying a new car. So first, here’s how to get pre-approved for a car loan.
Know Your Credit History
This is going to be the biggest deciding factor on whether or not you even get approved for a car loan. When you get your credit report, look it over very carefully and make sure there are no mistakes on it. Your credit report could be ruined because a debt that you paid off years ago is still showing. Take the appropriate steps to rectify any mistakes and get them taken off of your credit report. If you have debts on your credit report that are lowering your credit score, do your best to pay them off quickly – even before you apply for the car loan, if possible. This will help ensure that your credit score is as high as possible and that you get as much of a loan as you need.
Even if you don’t have perfect credit history, don’t despair. There are many companies that specialize in giving car loans to people with bad credit. You should be aware however that if you go this route, you’re going to be paying high interest rates and it will take you much longer to pay off your car loan.
Understand Car Loan Terms
Before you apply for a car loan, you should understand some of the terms that come with it. This will help you understand any loan papers much more clearly, and will help you determine how much the loan, and the car, are ultimately going to cost you.
The “term” of the loan is how long you will have the loan for or rather, how long you have to pay it off. Try to keep this as short as possible. Not only because you want to own your car outright as soon as possible, but also because the longer the term of the loan, the more you will end up paying in interest.
The “interest rate” is the amount of interest you will be charged on top of the price of the loan. Because the dealer or the lender needs to make money off of your loan, they will charge interest that will be added to your loan. Interest rates do vary so make sure that you compare different lenders to get the lowest interest rate possible.
The “down payment” is the amount of money that you will pay initially, before any payments are made. Usually, a twenty percent down payment is needed to acquire a car loan. So if the car you’re looking at has a sticker price of $20,000 your down payment is probably going to be around $4,000. Keep in mind however, that the more you pay in your down payment, the less your loan amount will be, and the shorter it will be too. So you’ll pay less in interest charges!