Purchasing a car is a significant investment, and for many car buyers, dipping into their savings to buy a new car is not enough. In such situations, getting an auto loan can take off a lot of financial burden. With the best auto loan rates offered by several loan providers, a car buyer can easily get the right deal with favorable terms. There are several ways to find the best auto loan deals.
Decide the budget
When looking for ways to find the best auto loan deals, make sure to figure out what is affordable. To do this, review the present finances. This is important because many lenders look at the applicant’s debt-to-income (DTI) ratio, credit score, and income before approving any loan. So, make sure to consider the overall ownership cost of the car. This means factoring in the cost of regular maintenance, car insurance, and regular maintenance. Ideally, less than 20 percent of the monthly budget should be spent on the car. Along with this, researching the market can also help with determining the budget. Examine the prices of different new and used cars at different dealerships for this. Additionally, determine the standard down payment required. A larger down payment usually indicates less money borrowed through auto loans and better deals on the loan rates. Trading in can also help increase the overall down payment and improve auto loan rates.
Check the credit
Once the budget has been determined, check how the credit score will affect the monthly payments for the loan. This must be done because most lenders offer auto loan rates based on credit score. The credit score determines the annual percentage rate, or APR, of the loan. The higher the credit score is, the lower the rate will be. The credit score can be checked online. The complete details of the credit status can be accessed through three of the main credit bureaus: Experian, TransUnion, and Equifax. Besides, a credit card issuer or bank can also give a free update on a monthly basis. The minimum credit score for loan approval generally varies across lenders. However, a score between low and mid-500 is needed to qualify for an auto loan. To get the best deals on auto loan rates, a score of over 700 is generally acceptable.
Do as much research as possible
While deciding which auto loan is the most suitable, make sure to do a lot of research. This includes looking into as many lenders as possible. It can be helpful to look at the reviews of auto lenders, which are available online. Ratings and reviews through Better Business Bureau can also be useful in narrowing down possible lenders.
Different types of lenders include credit unions, traditional banks, and online lenders. Besides that, some dealerships also offer auto loans. Each has its own customer experience and terms and conditions for loans.
Compare auto loan quotes
Once the research is done and there is a short list of preferred lenders, compare auto loan rates. Ask for quotes directly from the lenders. This is because not all loan applicants get the same lowest rate marketed by the lender. Every applicant gets a different APR based on several factors, like their credit score, income, and the cost of the car. While doing the auto loan comparison, look at the loan term and APR. Longer terms usually mean small monthly payments but higher total interest.
Additionally, compare the turnaround time for the loan approval. Some lenders approve loans quickly, while others have a waiting period. Besides this, additional lending fees such as origination and prepayment fees should be compared.
Read through the fine print
Once the quotes for the loans are received, read through all the fine print. This is a binding agreement that the car buyer has to follow through until the entire loan is paid off, along with the interest. So, it is crucial to learn about what one is agreeing to. Lenders are generally required to openly disclose information such as the interest rates, cost of borrowing money, and upfront fees in easy and simple language. This ensures that the borrowers are safeguarded against harmful lending practices.
Always keep away from lenders who seem to hide information or gloss over it. When reading the fine print, it is essential to check the mandatory binding arbitration, loan processing cost, prepayment penalties, and any other fees charged by the lender. Binding arbitration is a legal clause that prevents a loan applicant from suing the lender in case of wrongdoing. In most cases, prepayment penalties are assessed whenever loans are paid off earlier than the agreed loan terms.
Apply for pre-approval
Several major lenders offer pre-approvals on auto loan rates for used cars as well as auto loan rates for new cars. With pre-approval, a car buyer can lock into a loan rate before purchasing the car of their choice. With pre-approvals, one can get a fixed period, such as 30 days, to compare different vehicles before the purchase. This also enables one to negotiate better deals at the dealership effectively. Getting pre-approval is quite similar to applying for a credit card or any other loan. Prepare all the common documents for submission to ensure a simple pre-approval process. These documents can include proof of income, insurance, and employment. Before submitting the documents, asking the lender what other documented information they might require for the pre-approval process can be helpful.