Auto loans are used by most car buyers when purchasing a vehicle because paying cash for such a big investment is not an option. With an auto finance loan, a car buyer can buy the used or new car with a down payment, a credit check, and the agreement on monthly payments. This eliminates the car buyer from being expected to come up with the full price at the time of purchase. Obtaining a car loan requires the potential car buyer to have established credit and the ability to make monthly payments on time.

Auto loan rates can vary depending on the market and geographical location, so many car buyers wait until they know there are reasonable rates to make their purchase. When applying for a car finance loan, there are a few tasks you must do to become approved for the loan. Typically, the dealership finance department or financial institution’s loan officer will walk you through the procedure. However, it’s good to know the auto loan process before you start looking for a car. Here are the steps you must take when attempting to obtain a car loan.

Figure Out Your Car Loan Budget

The first step in the process is to analyze your current budget and income and nail down exactly how much you can spend a month for the car. Consider the down payment you can afford, and try to estimate the trade-in value for your current vehicle, if you have one. Looking into used car loan rates, as well as current auto loan rates will help you determine how much you think your loan will be per month. When you know the monthly payments you’ll be able to afford comfortably, you can then roughly calculate the purchase price you can realistically shop for before you begin visiting dealerships.

Find Your Car and Look Into Vehicle Finance

Once you’ve found the car you want, it’s time to search for the lowest auto loan rates you can find. The exact rate offered depends on your credit, down payment, loan terms, geographical location, and the current market status. Used car loan rates can also be different from new car loan rates, so consider both options and how it would reflect on your budget before choosing a vehicle. Once you’ve chosen the vehicle you like, you’ll have a firm idea of the purchase price and how much you’ll need to finance.

Check Auto Loan Rates and Choose a Creditor

When financing a car, you’ll need to turn in your information to the dealership or direct lender before they can offer you a contract. A credit check will be required and a lower score will usually lead to a higher interest rate or bigger down payment requirement. There are bad credit car loans usually available through both the dealership and a direct lender, but these loans typically have high interest rates and long terms. When comparing the auto loan interest rates and loan quotes given by all sources you shop with, be sure to compare the same terms and conditions on the loans, so you can choose the best deal that works for you.

Ask Questions Before You Agree to a Vehicle Finance Loan

Before signing any paperwork, make sure you understand the monthly payment due, amount due up front, loan terms and timeline, early pay off penalty fees, and late payment penalty fees. A loan through a dealership may also come with some incentives, like help with a down payment, the upgrade of vehicle features, or an extended warranty. These benefits can often save you money in the long run, so it’s important to ask about them and take advantage before signing any paperwork for your car finance loan.

Consider a Refinance Auto Loan

If it’s been a while since you initiated your car loan, you may want to explore your options for refinancing. Consulting with a direct lender on the current auto loan rates will help you decide if it’s a good time to refinance your loan. If you’ve had a drastic increase in your credit score, you may also benefit from looking into your refinance options for your car loan. Keep in mind that you may need to have some money to put down up front again in order to refinance your auto loan, but if it can dramatically reduce your monthly payments, it may be worth it.

There are many car finance options out there for car buyers looking into new or used cars. The help of a loan professional at the dealership or direct lender will be useful while completing these steps. Asking questions and understanding the loan terms before signing will ensure you receive an auto loan that works in your favor. By following these steps, you’ll be able to procure a sensible and budget-friendly auto loan for your purchase.

Last updated on Friday, February 28 2020.