Guest Post by Edward Pacheco
Getting a loan on a new car can be easier said than done. In short, lining up financing for that new ride of yours all depends on your credit score. If you have a perfect credit score then you will have no problem getting approved for financing, and getting a great rate.
But if your credit score is less than perfect you might have a tough time getting a loan at all. At best, you might get approved for a loan with a wildly high interest rate. Regardless of how your credit is there are some things that you can do to help ensure that it is steady and constantly rising.
By taking the time to follow a few simple steps you should be able to secure financing for that new car that you have had your eye on in no time at all!
Car loan advance preparation
The first thing that you need to do is review your credit history, obviously. This should be done well in advance of the point where you start visiting dealers. You can do this online, but you shouldn’t do it more than a few times a year, preferably only once a year.
Reviewing your credit history will give you an idea what your situation is. If you have somewhat poor credit you will be able to pin down why on the credit report. For example, maybe you have a student loan from 5 years ago that you forgot to pay off, or maybe you have more credit cards than you think. Whatever the case may be, knowing your credit history will allow you to identify and rectify any potential problems.
You should also check your credit history to see if there are any errors on it. Clerical and human errors can happen more often than you think! These mistakes can be costly if you do not know that they exist. Furthermore, since identify theft has become such a big problem it is smart to check your credit history in an effort to ensure yourself that your identity hasn’t been stolen and gotten hit with unidentified charges.
If you have some strange credit strikes on your report that you are unaware of you should speak with the credit bureaus right away in order to clarify the situation and hopefully rectify the potential problem.
Crunching the numbers
The next thing to do when applying for a car loan is to determine how much you can afford to pay. There is no sense in applying for a loan that is too large, as they are harder to get approved for since it’s technically harder for you to pay it off. In addition, a larger loan may have a higher interest rate attached to it.
Once you determine what you can afford you can start to track down loans that are offered by third parties. (You can find a free auto loan calculator at Automotive.com to pre-calculate some payment scenarios and find out how much you can afford.)
A credit union or a bank will give you the best chance of getting approved especially if you have less than perfect credit. Take the time to approach these places and build a relationship with the people that work there. If they see that you are a respectful person with an okay recent credit history they will be more likely to grant you the loan that you are in search of. Doing in-house dealer financing is easier and sometimes better, but not if you have a mediocre credit history.
Making the loan application
When you apply for loans with these third party lenders you will need to have documentation ready. Documentation should include recent pay stubs to prove that you are employed or have an income. Having this documentation with you when you apply for the loan will help to speed up the approval process. It will also help you seem organized and serious about the loan.
Of course, there is the chance that the bank or credit union may tell you that you do not qualify for a loan or that you qualify for a high interest loan simply based on credit score. If this is the case you can try another third party lender or even the finance department at a local car dealership.
Regardless of if you are in the market for a new car or not, one of the most important things to do to ensure that you will get the loan for whatever (be it a house) is that you want to keep a clean credit history. If you are unable to secure the loan that you are looking for on the first try you can always make another attempt in the future. However, the next attempt may yield the same result as the first attempt if you haven’t done anything to build your score. Make sure to pay all of your bills on time and make sure not to overextend yourself as a borrower.
Have you recently applied for an auto loan? What was your experience? Can you make any recommendations that might benefit other readers?
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Your first point, checking your credit score, is more important than people realize. There are tons and tons of errors on credit scores … with so many data to track, and so many people to track, its natural that credit agencies will occasionally make errors. Fortunately, these agencies rely on their accuracy in order to be respected, so if you catch a mistake, they’re pretty good about dealing with it right away.
Hi Paula–That’s well put. When I worked in credit we say errors quite a bit. They can be fixed, but you have to allow time. Some errors can take weeks to fix, especially if the creditor isn’t cooperative. When it comes to credit, you can’t wake up one day and decide to apply for a loan–there has to be some preparation time to make it go smoothly.
Checking your credit is definitely the first step and remember, if you have less than perfect credit, you will get a higher finance rate but you will also have to put a down payment of approximately 25% of the purchase price.
When most people think of borrowing money, they think of banks, with their long, drawn out application process, or credit card and payday cash advances, which come with exorbitant interest rates, hidden fees, and other threats to fiscal health. Auto equity loans provide another, more affordable option that allows borrowers to get the money they need quickly, conveniently, and affordably.