Getting a car loan is both an exciting and slightly stressful time. It’s exciting because you’re that much closer to getting your new vehicle. However, it’s stressful because you’re borrowing money, which means you’ll have monthly payments to add to your budget.
There are ways that you can ease the stress of getting a car loan by preparing yourself beforehand. Many factors come into play when getting not just a car loan, but any loan. If you think about those before making a decision, it will help you in the long run.
Consider the following five factors before you sign for a car loan.
What is Your Monthly Budget?
The first and most important factors to consider is your budget. One of the first questions any dealership will ask you is what your budget is for getting a vehicle. Having a budget in mind will help keep you on track and determine what vehicle is most affordable.
Don’t just look at the vehicle as a monthly payment. You may find yourself biting off more than you can chew that way. Although only a couple hundred dollars a month seems reasonable, how long will your loan last for? You could end up paying thousands of dollars in interest rates, increasing the overall price of the vehicle.
What is Your Credit Score?
It’s a good idea to become familiar with your credit score. That is because if it’s too low, it could stop you from getting the loan you wanted, or a loan at all.
If a lender sees someone with a low credit score, to them, they are a risk of defaulting on their loan. A high credit score means you make your monthly payments on time. Not only that, a good credit score can help you negotiate better terms on your loan.
Shop Around for Car Loans
Just like you don’t buy the first car you see on the lot, you shouldn’t sign up for the first car loan presented to you. It’s essential that you spend time talking to multiple lenders so that you can compare car loan quotes.
“Many Canadians walk into one dealership and assume that is all they need to do to get a fair car loan — but that doesn’t get you the best deal and you can even be outright turned down if you have bad or no credit,” says Sean Widdess, Vice President of NeedaLoan.ca. “That’s why you should go online where you can find services that will get you matched with a dealership near you that specializes in offering a variety of car loan options from multiple lenders. Doing that can save you hundreds or even thousands of dollars a year on your loan and can be the difference between you being accepted or denied for an auto loan altogether if you don’t have great credit.”
Not every lender will come up with the same loan terms. One lender may have higher interest rates than the other, and one may have different stipulations compared to another. Speak with multiple lenders, whether it be the dealership or a bank, and get a few loan options.
A pre-approval for a car loan means the lender will give you a certain dollar amount for your loan. You don’t quite have the loan yet. However, you’re almost there.
Getting a preapproval helps for a few reasons. To start, you know that you’ll be able to get the car loan. You wouldn’t want to shop for a vehicle, only to find out you can’t get the loan that you need to buy it.
Another reason for preapproval is that it helps give you an idea of what you can afford. That way, you can stay away from the vehicles outside of your price range and focus on what you can afford. Once you find a vehicle, take your pre-approval to your dealership to see if they can give you a better rate on the loan.
Have a Down Payment Ready
If you want to have the smallest loan possible for the shortest amount of time, a down payment will help with that. A down payment means you don’t need as large of a loan from the lender. So, you have fewer monthly payments to make, and less amount of interest to incur on your loan.
When the time comes to get a car loan, consider the above factors to help you out. Getting a loan with the best terms possible will help you save money every month.