When it comes to auto loans, there are hundreds of different factors that you’ve probably had to take into consideration, including your own credit rating, your budget, and the condition of the car. Let’s face it, buying a car is probably one of the largest personal investments that you can make outside of buying a home and you need to be confident about every last detail before you even think about committing.
But how do you know what the best auto loan is for you?
While much of it might depend on your own personal needs and history, applying for an auto loan isn’t quite as daunting as it might seem. In fact, it can be a relatively hassle-free process—even with bad credit. But first you need to know what to look for. Here are some things to keep in mind when searching for an auto loan that’s best for you.
Think Of The Big Picture
Monthly payments are the single greatest concern of most car shoppers when applying for an auto loan. In reality, it is not the only thing to consider and thus may lead to a car shopper making a big mistake.
For one, it’s common that you are not actually taking into consideration the purchase price of a vehicle, but only the monthly cost—a cost that can come with relatively high interest rates. Rarely does one think about the condition of the car and the potential depreciation in value. Sometimes, we can also forget to consider the total cost of owning a car including expenses for vehicle registration, insurance, taxes, and fuel. Instead of taking into account all of these items, your focus has simply been on its monthly value, and more importantly, whether or not you can justify it.
A car is a major purchase. You not only need to think about your original budget but also about future costs. Not just in repairs, but also in higher interest rates. Take into account the possibility of having upside-down loans, which occur when you actually owe more than the total value of your car. Think of an auto loan as more than just a necessity, but an inevitability that can affect you for years to come.
What About My Credit?
It’s been estimated that the average credit score for most Americans is 695. This credit score is good, but not great. 4 out of 10 Americans have no idea how their credit score is even calculated. It is important to know that the process of applying for a major loan can make a” soft hit” on your credit rating and also that securing an auto loan can help to build your credit with successful on-time payments.
Credit is not the only factor that both lenders and dealers take into consideration. And believe it or not, many lenders are starting to become sympathetic to the fact that bad credit can be the result of circumstances beyond your control. Your employment history, your past vehicle ownership, and even your driving record can play just as much of a decisive role for lenders when it comes to auto loan approval. The question you should be asking yourself isn’t whether or not your credit history affects your approval for an auto loan–It’s whether or not your current circumstances justify it.
Lenders VS Dealers
Unfortunately, many banks simply don’t take your current financial responsibility into consideration when approving your loan. The single most important factor to most banks will be your credit history and they won’t always make an exception for that rule.
As a result, many shoppers are looking at non-traditional hard money lenders as an alternative source of financing including online lenders, payday lenders, and car title lenders. This is one of the biggest mistakes you can make when applying for an auto loan. Not only are interest rates exorbitant (sometimes as much as 658 percent in some states) with hard money loans, but many are downright dangerous. Online fraud isn’t just a potential threat it’s a very real one.
A reputable dealer will often be your first, last, and best choice when applying for an auto loan. Not only are they more understanding of your credit history than national banks, but they can offer you better deals and financing options than conventional lenders. They work with you as a person; not as a statistic.
Used Or New?
If you’re lucky enough to secure pre-approval, you may be tempted to purchase a new car. And while new cars may have the latest state-of-the-art technology and features, you still need to think about how the purchase can affect the loan process.
The fact is that while extended payments on a used car might seem like they sometimes come at a higher interest rate, take into consideration that the monthly payments will turn out to be dramatically less than a new car—particularly if you finance a used vehicle for 36 months as opposed to 48 months for a new car. Not only that, but credit approval for used vehicles will often be dramatically lower; sometimes by as much as 100 points.
As for the performance of a used car, unfortunately, it can be a question of finding a reputable dealer. Federal lemon laws typically only cover new vehicles. But, a used car dealership with a steady history and a solid reputation typically won’t take any chances by selling you a dud. After all, their livelihood is at stake. If the previous owner of the vehicle maintained the upkeep of the car (and we’ll assume you’re willing to do the same), you just might find that a secondhand car can perform just as well as a new one.
Looking for a used auto dealer that will work with you—not against you? Visit us today at Carfect.