Applying For a Car Loan
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What You Need to Know Before Applying For a Car Loan

Let’s face it: Whether you work for someone else or are in business for yourself, chances are, you need a car. America’s car-dependent infrastructure all but necessitates one. However, purchasing a car for yourself can often prove an expensive venture.

While you can save up for months on end to buy an older vehicle, one of the best ways you can get the keys to your own car is through the financial assistance of an auto loan. However, before you sign your name on the dotted line of the contract, there are some crucial things you need to keep in mind. Here’s what you need to know.

First, How’s Your Credit Score?

If that question just sent you into a full-body shiver, you aren’t alone. Sadly, you’re not getting anywhere without a decent credit score under your belt. If your credit score is poor, then you run the risk of not getting approved for a car loan at all. Worse, if you do get approved, you’ll have to contend with higher interest rates, higher payments, and less than favorable terms for your auto loan.

So, What Can You Do to Fix It?

Thankfully, if your credit score is less than favorable, you have ways to fix it before beginning the application process. The best ways that you can help your credit score include:

  • Disputing any errors on your credit report
  • Reducing your debt-to-income ratio
  • Paying down or off existing debts
  • Contacting a credit repair company if all else fails

By taking these steps, you can make sure that you get the financial help you need to get your next car.

Make Sure You Budget for Your Monthly Payments

Another thing to keep in mind before you settle in to apply for a car is to ensure that you have the money set aside for the payments each month. One of the biggest mistakes that new car applicants make is not budgeting for their car payments. It does you no good to get a car loan if you lack the crucial skill of managing finances.

If managing money isn’t necessarily your strong point, never fear! There are countless resources available online to help you sort through your monthly expenses and find places that you can save money. Even better, these resources can explain how a car loan works and how you can manage your payments with ease.

Browse Around for the Best Interest Rates

When you start browsing around for cars, you should make sure to prioritize your interest rates.

Why is this important? Well, your interest rate affects how much extra you have to pay back on the money you borrowed to get your car. To quote a somewhat simplified version of the concept from the old School House Rock series, if your interest rate or APR is ten percent, “For every dollar that you owe the bank, you have to pay a dollar and a dime.”

The higher your interest rate, sometimes listed as APR, the more money you have to repay on each dollar borrowed, and the longer you have to pay on what you owe. Many dealerships offer introductory interest-free periods, which can help you save money in the long run. Especially if you can pay off your car within that interest-free period!

Save Up for a Down Payment If You Can

Look, we get it. No one wants to be told to save money when they’re searching for financial assistance. However, we guarantee that if you save for a down payment on your car, you’ll feel more at ease with your monthly payments. 

Even if your credit is good enough not to require one, making a down payment will reduce the amount you have to pay on your car each month. This can help you save money in the long run, or can allow you to get a much nicer car than you would have been able to afford with a loan alone.

Shop for the Right Car for Your Needs

The next thing you should keep in mind when looking for financial help to buy a car is to buy the right car for your needs. Used car salesmen (and car salesmen in general) have a notorious reputation for scamming buyers or selling them on more “car” than they need. Considering almost every car dealership pays on commission, it’s only natural that they would seek to line their pockets with as much of your money as possible.

So, how can you find the right car for your specific needs? Here are some things to keep in mind:

Consider Your Actual Mileage

Buying a more fuel-efficient vehicle is an important step in helping your wallet and the environment. However, it cannot be denied that vehicles with greater fuel efficiency tend to be more expensive than those without such features. Plus, even if you get a fuel-efficient vehicle, you won’t receive the full benefits if you drive, at most, a few miles back and forth from home.

Greater fuel efficiency helps you more and pays greater dividends if you drive over large distances. So, if you only drive within city limits and don’t intend to travel much, you most likely don’t need to drop the extra money on a hybrid or electric vehicle.

Think About the Space You Need

Another factor to consider before seeking financial assistance for your car loan is how much space you need for your vehicle. Are you buying a vehicle for yourself, yourself and your possessions, or a growing family? That fancy sports car you just bought won’t do you much good if you get married and have a child before you finish paying it off.

Nor will a gigantic pick-up truck serve you any useful purpose if you don’t haul large loads around on a regular basis. Status symbol or no, you need to keep your financial management your first priority. So, only buy a car with the amount of space you need or will need in the future.

What Features Do You Value?

The last thing to keep in mind when seeking financial help to buy a car is the features that you value in your car. Do you prefer a full suite of safety features? Do you need all the latest and greatest tech features with a complete connection to your entire internet of things?

How to Apply for Financial Assistance

Now that you understand some of the basic things you need to keep in mind before applying for financial assistance, let’s talk about the application process itself. Once you decide you’re ready to apply for a car loan, these are the steps you’ll need to follow:

Search Online for Pre-Approvals

If you’re applying for financial assistance of any kind, your first port of call should be to search for any pre-approvals that you can get. These pre-approvals are not a guarantee of the terms you’ll receive when you finalize your loan application, but they can give you better interest rates, terms, and monthly payments than applying for the loan by yourself.

If you’re not sure what rates you’re eligible for, finding pre-approvals can help you avoid getting ripped off by car dealerships. In fact, if you can finalize your pre-approval before setting off for the car dealership, so much the better.

Bring Appropriate Documentation

Whether you apply for your financial help online or at the dealership, you must make sure you bring appropriate documentation. The documents you’ll need to get approved for your loan will include, but are not limited to:

  • Proof of income, such as pay stubs or bank statements
  • Proof of residence, like utility bills
  • Proof of your ID, like a driver’s license
  • Title and registration for your trade-in vehicle, if applicable

While you may not need proof of income or residence unless your approval is borderline, you should bring them just in case.

Don’t Forget About Car Insurance

One last thing to keep in mind when seeking financial help in the form of a car loan: Don’t forget your car insurance. If you finance a car, you will need to purchase car insurance while you’re repaying your loan. Many dealerships won’t let you drive off the lot without it.

Car insurance should, ideally, be considered part and parcel of your monthly payments for your new vehicle. If you don’t do this, then you could find yourself with an insurance bill you can’t handle on top of your normal auto loan payments.

Let’s Review What You Need to Know Before Applying for a Car Loan

There’s a lot to keep in mind before you apply for financial assistance, especially in the form of a car loan. You have to consider your credit score, your monthly budget, the type of car you need, and whether or not you can afford the insurance for the vehicle. However, if you plan for all of these factors, then you should have no problem securing the money you need for the car of your dreams. And if you need more help getting your finances sorted out for a car, a home, or any other big expense, check out our blog each day for more helpful guides like this!