Financing your new car can be a serious pain in the neck. Whether you’re working with a dealership or a financial intuition, here are a few tips to help you finance your new vehicle. Although this process may seem challenging, it’s quite easy once you break in down into these five sizeable steps.
1. Review Your Credit Score
Before you do any car shopping, you should first review your credit score. Believe it or not, your credit score determines how much you’ll have to pay for your auto loan and can even open up further financing opportunities. Generally speaking, the better your score is, the more affordable it is to borrow money from a lender. However, with a higher credit score, you’ll also be able to score on lower loan interest rates and lower auto insurance premiums, among other benefits.
2. Determine Your Budget
Understanding how much you can spend is instrumental in choosing which car to go with. After all, you don’t want to buy a car that doesn’t fit well with your financial goals, such as a 401K or other savings plans. If you don’t currently have a budget, we seriously consider starting one, so you can better track your finances and prepare for your future. In your budget, you should take a few auto costs into account, such as vehicle registration, auto insurance, etc.
3. Figure Out How Much You Can Spend
Now that you know where you financially stand, you can figure out how much you can spend on monthly car payments. However, a recommended rule of thumb to follow is to not spend over 10 percent of your income on your car. Using an auto loan calculator, you can find what the largest loan amount you can take out.
4. Get Preapproved
The next step is the preapproval process for your car loan. You should do extensive research on the best loan deals going by comparing loan periods, interest rates, etc. Although credit unions are often the best place to shop for a car loan, we highly suggest looking online as well. You should do with a loan that has the best interest rate, loan amount, and terms and apply for preapproval. However, keep in mind that preapproval loans don’t last forever, so as soon as you get it, head down to buy your car.
Also, consider when you apply with a lender that they’ll run a credit check against you which may lower your score, so you want to process all your loan application within a two-week period. This way, the credit checks will appear as one substantial inquiry, instead of a half dozen. Another thing to keep in mind that when you’re pre-approved, your lender determines how much you’re eligible for.
5. Go Car Shopping
Now that you know how much you can spend, it’s time to start shopping! After a little research in your area, you should be able to find your dream car in no time, just make sure it fits your criteria and budget. Take advantage of resources like Consumer Reports to see what kind of car is best for you and Kelley Blue Book to see what the current rate is for the car you want