As a prospective auto borrower, you’re probably bombarded with loan offers and advertisements regarding auto loans at every corner. While getting a car loan might be one of the most intimidating financial experiences, there are a few ways to help you get approved for your auto loan with the best interest rate possible. Here are some standard requirements that you should know before stepping into the dealership.
Review Your Credit Report
Be mindful of your credit report when you’re shopping for an auto loan. You’ll need to know your credit score. You’ll also want to be sure there are no errors on your report that could affect your ability to get a loan or the interest rate you pay.
If you have subprime borrowings or poor credit — with a score of 600 or lower — consider spending six months to a year bolstering your credit before applying for a car loan. Making timely payments and paying down credit card balances can help improve your credit so that you can qualify for better rates.
Check out Multiple Lenders
When you’re shopping for an auto loan, get quotes from different lenders—your bank or credit union may provide a better deal if you agree to automatic payments. You can compare rates online at your convenience. Before you apply for financing, check with each lender as to whether or not they will allow you to buy your car from a private party. Also, take the time to learn the language of car financing.
Apply for Pre-Approval
Getting pre-qualified or pre-approved by the lender makes you eligible for a loan quickly and on better terms. Being pre-qualified means that a lender has an idea of your creditworthiness but won’t look too deeply into your finances. Pre-approval is an even stronger signal to lenders that you’re a good candidate.
Set a Budget
Your pre-approval offers will indicate the maximum amount you can borrow to buy a car. However, the advertised price of the vehicle doesn’t include all the fees. You should allow an additional 10% for taxes and fees. An auto loan calculator will help determine how much you can afford to borrow. Enter your down payment and trade-in value, along with your preferred loan term and assuming you have good credit, to see your estimated monthly payment.