Getting a Car Loan - Pre Approved

1. Check Your Credit

When shopping for a car loan, check your credit report. The better your credit, the cheaper it is to borrow money.  With a higher credit score, you may be entitled to lower loan interest rates and APR%, and you may also qualify for lower auto insurance as well.  There are now free credit reports available just by going to any of the credit bureau’s online site and requesting one.  It is just that easy!

Review your credit report to look for unusual activity.  There are a number of companies that provide your credit score for free in addition to the bureaus – many credit card companies now provide them so just be aware.  Dispute errors such as incorrect balances or late payments on your credit report.  If you have a lower credit score and would like to give it a bit of a boost before car shopping, pay off credit card balances or smaller loans.  Be sure to make on time payments for all you credit balances.

If you have a low credit score don’t worry about it.  A low score won’t prevent you from getting car loan financing.  But depending on your score, you may end up paying a bit higher interest rate but it’s certainly not a deal breaker.  You do what you need to do to get your credit back in line.  If you have a low credit score and want to shoot for lower interest rates, take some time to improve your credit score, and make sure you have on time payments before you apply for the car loan.  You might also read a guide on auto financing – it can really help you understand the process and things that are important in obtaining a car loan.

2. Establish a Budget

Having a budget and knowing how much car you can afford is essential.  You want to be sure your car payment fits in line with your other financial goals.  If you don’t already have a budget, start with your monthly income after taxes and subtract your usual monthly expenses.  It’s easy to jot the expenses down so that you can easily come up with a total.  For bills that don’t come every month, such a credit card fee, take the yearly charge and divide it by 12.  Then add the result to your monthly budget.  If you’re worried you spend too much each month, find simple ways to whittle your budget down.

You’ll also want to plan ahead for new car expenses, such as auto registration, auto insurance, and regular car maintenance, such as oil changes and basic repairs.  If you purchase a new car many dealerships now provide free maintenance for the first 2 years or 25,000 miles.  Be sure to check that out when you shop.  By knowing your budget and what to expect, you can easily see how much room you have for a car payment.

3. What Can You Afford

Once you understand where you are financially, you can decide on a reasonable monthly car payment.  A good rule of thumb is to not spend more than 10% of your take-home income on car loan financing.  In other words, if you make $50,000 after taxes a year, you shouldn’t spend more than $500 per month on a car.  But depending on your budget, you might be better off with a lower payment so consider extending the length of your loan term.  It might work out that 72 months is better for you than 60 months of payments.  It’s important to try and understand how the number changes if you can afford a higher down payment.

With a possible payment in mind, you can use an auto loan calculator to figure out the largest loan you can afford.  Simply enter in the monthly payment you’d like, the interest rate, and the loan period.  Again you must be aware that making a larger down payment can reduce your monthly payment.  You can also use an auto loan calculator to break down a total loan amount into monthly payments.

You’ll also want to think about how long you’d like to pay off your loan.  Using a car loan estimator might be beneficial to you.  Car loan terms are normally three, four, five, or six years long.  With a longer loan period, you’ll have lower monthly payments.  But beware—a lengthy car loan term can have a negative effect on your finances.  First, you’ll spend more on the total price of the vehicle by paying more interest.  Second, you may be upside down on the loan for a larger chunk of time, meaning you owe more than the car is actually worth.  Knowing this actually helps you in determining how much to borrow and what type of auto you can afford.

4. Get Pre-approved – Real Offers

Before you ever set foot on a car lot, you’ll want to be pre-approved for a car loan. This can be done by using an online lending platform that permits you to see real loan offers that you can choose from.  As you research potential loan options, compare the terms, lengths of time, and interest rates to find the best deal.  A great place to shop for a car loan is at myAutoloan.com where you have a choice.

The loan with the best terms, interest rate, and loan amount will be the one you want to get.  Just know that pre-approved loans only last for a certain amount of time, usually around 30 days, so it’s best to get pre-approved when you’re nearly ready to shop for a car.  Note that most lenders will run a credit check – but know that multiple credit checks for an auto loan only count as one if within 14 days.  That’s right, keep your process within a two week time frame as you shop for the best car loan provider – that way all inquiries count as one.  Smart people shop for the best rates and credit bureaus know that.

Let me say that differently – when you apply to get pre-approved, up to four lenders evaluate your application and it’s possible to get four offers.  Now you get to decide who of these lenders is making you the best deal on APR% and terms.  They’ll present to you what interest rate you qualify for, and the maximum amount they will lend so you’ll know what you have to work with before you even walk into a dealership.  Selecting an offer from the myAutoloan.com lending platform means you do not have to go through the penalty box of car financing.  You are already approved and you know for how much you can go when dealing with the salesman at the dealership.  Depending on the car you buy, your cost of the car loan could be less than what you were pre-approved for.  You don’t have to use it all so it actually reduces your payment each month.

In most cases, if you are pre-approved, you shouldn’t have any problems getting a final loan.  It’s never a deal until it’s a done deal.

5. Go Shopping

Now you’re ready to look for a new ride.  Put in a little time for research, and find cars that are known to be reliable and fit into your budget.  

You’ll also want to consider size, color, gas mileage, and extra features.  Use resources like Consumer Reports to read reviews and get an idea of which cars may be best for you.

Once you have narrowed down the car you are interested in, investigate how much it’s worth so you aren’t accidentally duped.  myAutoloan.com can help you figure out the going rate for your ideal car.  Check out the free tools for rate and payment calculations.   After you’re armed with this information, compare prices at different dealerships in your area.  And don’t forget to check dealer incentives and rebates to get the best possible price.

By following these steps, you’ll be ready to make the best financial decision when getting a car loan.  Even if you aren’t ready to buy a car right now, it doesn’t hurt to be prepared. Good luck and happy shopping!