You’ve probably even decided the make and model. Now it’s time for you to actually buy your car and you may be a little confused as to how you’re supposed to go about financing it. Thinking of a car loan? We thought so.
Here is a guide to help you get started.
Take a good look at your credit score
Your credit score is going to play a very important role in determining your car loan rate which is the interest you are going to pay on the loan. This means the better your credit score, the lower will be your car loan rate, which means higher savings on the interest and vice-versa.
A credit score is a numerical expression of your creditworthiness. So you want to make sure that you take a few steps to improve this score.
Decide on your monthly payments
You will have to jot down a budget for yourself to make sure that you are not overspending. It is important to pick a car that you can afford. Think of the amount that you can shell out every month without hurting your monthly expenses. Use the payment calculator to get an estimate of the monthly payments.
Decide the term of your loan
You can spread the loan term to over three, four, five or six years. Most of us are going to opt for a five or six-year term as it breaks the payment down to smaller bits making it easier.You might want to give this a good thought as it is going to determine the small variations in the amount you will actually end up paying at the end of your term. Keep this in mind – the longer your payments, the higher the amount of interest you will pay.
Don’t exceed your price range
As we mentioned earlier, it is important that you pick a car that you can afford. Most of us pick our car first and then they think of how we are gonna pay for it, right? You’ve probably picked yours too. Try doing it the other way around. Scale-out your finance first and then choose a car that fits your price range. This way you won’t have holes in your pockets by the time the loans have faded. You may get overwhelmed while shopping around but keep your budget in mind and you should be sorted.
Take a note of the extra expenses
Buying a car involves a lot of extra expenses, some expenses you may be aware of right now, some you won’t. Fuel, maintenance, and insurance are a given. Keep a tab of these expenses in your monthly budget. At the first stage itself, you may have to shell out a few extra dollars, it can be for some safety accessory or extra feature that you want. This only makes an addition to your budget, so be prepared.
Time to shop around and get the best deal out there for your car loan. Check out the interest rates offered by multiple dealerships. Do your research well, it’s going to work for your benefit. You can shop for an auto loan right here.
Get a pre-approval
If and when you qualify for your car loan, you will get something know as a “pre-approval”. There are two benefits to this-
1) You can lock in your interest rate
2) You now have negotiating power with the lenders. Pre-approved loan amount should be such that it covers the purchase of your car along with a few additional costs.
These loans usually have an expiration date. You have 30 days from the date of approval to present the loan checks to the dealers.
Also, having a bad credit score doesn’t mean that you can’t get a pre-approval. You can get one, only the interest rate may be a little higher.
Complete your paperwork
By now you have picked your car and dealer and done your share of negotiation for the price. It’s now time to finalize on the paperwork. You must know that it is very likely that the dealer is going to try and trick you into buying extra unnecessary accessories or an extended warranty or something of that sort. You know what this means – increase your budget which you want to avoid. So play smart and be firm in your decision. There is no turning back at this point.
Make your monthly payments
Your paperwork is now complete, you have your car and you will soon have to start paying your installments. Make your payments in full and on time to avoid penalties. Also, it’s a good way to ensure that your credit score is not affected (you may want to buy a car again). If you want to finish your loan before time, you can make pre-payments. But check with your bank or the institution giving you a loan if there are any prepayment penalties.