Purchasing a car is one of the biggest investments someone could ever make in their life. Not everyone can fully pay a car’s price in one go. The good news is that auto loans and financing options exist. They even offer special promos and deals to help you with your finance and easily get the car you want.
While qualifying for a car loan can be a long and daunting process, there are several ways to secure it quickly. This post lists five steps to make your car loan application faster and score better terms on an auto loan than the dealership could offer.
If you’re looking for a budget that won’t leave you scrambling to pay your bills each month, the 10%-15% rule is a good starting point for finding a target car price. For example, if you’re planning to buy a new car, its price shouldn’t exceed 15% of your monthly take-home pay, and if you’re going to buy a used or lease, it should only be 10% or lower.
Applying this rule to your car’s target price isn’t the totality of your spending. You also have to factor in the gas and insurance costs, which will be another 7% of your net pay.
All in all, your ideal budget shouldn’t exceed 20% of your monthly after-tax income. Since only 20% and other car costs are already included, this budget generally won’t let you feel the pinch every month. However, the 10%-15% (plus around 7% for other car costs) rule may not work for everyone.
While “how much can I afford” isn’t a simple question, the best answer entirely depends on your budgeting method and ability to repay the loan.
Find out your present and future financial picture to get a more customized number for yourself. Check your current earnings and see how they keep up with your current job. If you’re considering some big changes ahead, account for them.
Lastly, know the full cost of ownership. Again, you’ll have to factor in all car-related expenses, such as gas, insurance, and maintenance costs, in the present and future. Also, assess your other expenditures. Always keep a budget and get a full understanding of your overall monthly costs outside your car expenses.
Credit reports go into more detail than your credit score. They contain every account you’ve had in the past seven years, including debt balances, payment history, and negative information (like late payments and delinquent accounts).
Reviewing your credit report for errors, such as misspelled names, duplicate accounts, or missing payment history, is necessary. All these mistakes can lower your credit score and increase the likelihood of getting rejected for an auto loan.
If there are any errors, have them corrected as soon as possible. They can take up to an entire month to act on your request. Hence, request for changes at least 30 days or more before you apply for a loan for car.
Get Pre-Approved for an Auto Loan
Before going to the showroom, have the preapproval process done. Dealers tend to add a commission to any rates offered by their partner lending companies. That’s why you’ll likely get a worse rate than the pre-approved rate at the dealership’s financing office.
Getting pre-approved beforehand is also a good way to know the maximum loan amount. Then, once you get to the dealership, negotiation is possible, as if you’re buying with cash. It’d be best if you get pre-approved with at least three lenders, so you’ll have many options and get the best deal.
When talking with salespeople, always compare your options to know what’s out there. Always hold your total buying power close to the chest. Remember that it’s key to negotiations.
If you can’t go to car dealerships in person, check online. Some sites offer better deals than those of brick-and-mortar dealerships. What’s more, it’s much more convenient. The only problem is that you’ll be unable to see and test drive the cars yourself.
The last step is confirming the terms of your ideal car loan. Before you agree on the loan terms and sign the documents, auto loan lenders typically ask you to hand in the following documents:
- Proof of identity
- Proof of residence
- Proof of income
- Proof of insurance
- Credit and banking history
- Method of down payment
- Vehicle information
- Current vehicle registration
Preparing the documents above in advance could help you get a car loan more smoothly and quickly when it’s time to apply. Once you sign the duly accomplished form and required documents, get your car title and registration and send them to your lender.
Your vehicle’s registration should be updated to your name. If you’re buying from a dealership, they usually take care of this. Otherwise, work with the Department of Motor Vehicles (DMV) and the seller to update the necessary documents. After completing the auto loan and sales, you can now take possession of your new car.
There’s no one-size-fits-all formula when determining car affordability. For example, many believe that car costs shouldn’t be more than 20% of your pre-tax monthly income, while others consider a car costing roughly half of your annual take-home pay affordable. Just remember that it entirely depends on your budget and ability to repay the loan.