For most of us, we’ll be buying a car through some form of financing. Very few of us can afford to just take the necessary money out of our bank account and put it down on a new car, after all. And before you shop for a car or look for a loan, you should be familiar with how the process works.
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Start With Your Credit Score
Before you do anything else when shopping for a car, start with your credit score. You’re entitled to get a free credit report annually from each of the three credit reporting agencies, so getting your report is simple.
Remember, the better your credit score, the better the terms you’ll get when shopping for a car loan. So take a moment to look over your credit history and look carefully for any errors, mistakes or other problems that you can rectify. Even just a few points can make the difference between a deal that makes sense for you and one you have to walk away from.
Work On Your Budget
Next, look at your budget and see what you can afford. Leave room in your budget; a car payment where you have to live paycheck to paycheck isn’t one you should accept.
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How The Auto Loan Process Works
To understand the loan process, first you need to understand where the loan comes from. Generally there are two kinds of financing: Direct financing, where you work with the lender themselves to qualify for the loan, and dealership financing. Contrary to popular belief, the dealership is not loaning you the money to buy a car; in fact, they’re often the intermediary between you and the lender. To get the best deal, you often need to use direct financing, so start your search with lenders who meet your standards.
Once you have those lenders, you should ask for a loan application, and the fine print and fee structure to go with it. Look over the fine print carefully; it’s here you’ll often find the various fees and other costs associated with applying for the loan. Remember that loans are products just like you find on the store shelves, and there’s a cost associated with them.
When you file your application, you’ll get a complete look at the loan you’ll be offered. This includes the principal, or what you can borrow overall; the interest, or how much you’ll pay above the principal on the loan; and the term, how long you’ll pay the loan expressed in months. Remember that a longer term will mean that you pay more interest on the loan, and thus more on the loan overall. So compare the loans both in how good the terms are for you, and what you’re going to pay overall. A lower monthly payment might mean you pay far more for the same car depending on the interest.
Once you have financing, then you can get the car. Just remember; your car loan is a product, and like any product, it has to be paid for. Make sure you’re getting the best value for your money.