Applying for an Auto Loan
Are you looking to buy a new car? If so, you’ll likely need to apply for an auto loan, unless you have saved up some money to purchase it with cash. However, for many buyers, that isn’t that case, and you’ll need to understand what goes into applying for an auto loan.
Check the Interest Rates Available
Your interest rate will depend on your credit score, income, and the length of your auto loan. Having a better credit score will get you a better interest rate. If your credit score isn’t that great, then getting an auto loan with bad credit will cause you to have a higher interest rate. However, you can refinance your auto loan for a better rate once your credit score improves.
Know the Length of Your Auto Loan
Some lenders offer longer-term loans: up to 84 months. These offers might look enticing with the lower payment amounts, but you’ll be paying more interest over the life of the loan. Also, because of the rapid depreciation of newer vehicles, these loans may have you owing more than your car is worth. This could cost you more if the lender requires you to carry additional gap insurance. The recommended loan term for new cars is 60 months and used cars is 36 months.
Know How Rate Shopping with Affect Your Credit
Some lenders will do soft credit pulls and others will run a full credit check. A soft pull doesn’t guarantee you’ll be approved for the loan or rate you thought, but it also won’t damage you credit score. If the lender does a full credit check, then your score will drop a few points, but you’ll know the exact rate you’ll get at the end of the process. In addition to the credit pulls, if you’re rate shopping, be prepared to be contacted by multiple lenders and auto dealers.
If you find a lender outside of the dealership, make sure they’ll work with your dealer. Some auto lenders have restrictions. They may only work with a specific network of dealers or won’t lend money to buy from a private seller. In addition, they may also exclude makes and models of cars.
Understanding how the lender will provide the funding is also important. Some lenders will cut a check while other may make a direct deposit. One thing is for certain, you won’t leave with your new ride unless the dealership is paid - check out our loan guide for more information.