These are the steps required to ensure that you get the best car loan.
Credit Report Check
Lenders will consider your credit score and your income to determine how much you can borrow and on what terms. So, your first step should always be to check your credit report. You are allowed one free check per year, so get your credit report and correct any mistakes or errors it may have. If you have poor credit, and a car is not a priority, spend six months improving your score so that you can get better terms.
Multiple Lender Application
Once you have an accurate credit report, explore the options you have for borrowing money. Ideally, you should apply to and compare quotes from large national banks, local community banks or credit unions, and online lenders that specialize in auto loans. Learn about terms like Annual percentage rate (APR), loan term, down payment, and taxes and fees before you apply for a loan.
Preapproval
Get lenders to compete for your business, because that is one of the best ways to get better terms for your loan. Ideally, you should go in for a preapproval that requires a “hard” credit pull, which temporarily lowers your credit score. That’s why ensure that you complete all preapproval activities with multiple lenders in the same two-week period. Multiple requests within this time frame are counted as one, and so won’t affect your credit score too much.
Budget
The preapproval amount is the most you can borrow. Add 10% for taxes and fees. To simplify matters, find an online auto loan calculator, enter your down payment, the trade-in value of the current car, and lending terms to find the right monthly payment as per your budget.
Car And Dealer Offer
Ensure that the car and dealer you choose meet your lenders’ criteria. The dealer may try to beat your lender’s offer once the dealer knows you’re preapproved for a loan.
Finalize
Once you’re satisfied with the lender’s terms, read the contract very carefully before signing. Look out and question hidden fees, longer loan terms, add-on you didn’t request, and an early pay-off penalty.