Purchasing a car can be an exciting process, but it can also come with a lot of confusion, anxiety, and stress.
How do you decide how much car you can afford? How do you take out a loan? Where do you get a loan?
All of these questions can be overwhelming. We’ve compiled some information to de-mystify the loan approval process, the benefits of getting pre-approved for a loan, and how to buy a car with a pre-approved loan.
Do I need a car loan?
If you’ve decided to purchase a car rather than lease one, the first thing you need to consider is what kind of car you need and what kind of car you can afford.
If you’re planning to finance a car, some experts recommend spending no more than 10-20% of your gross income per month on your car – including all of the associated expenses: car payment, insurance, interest, parking, maintenance, fuel, etc.
Based on this estimate, you can determine if financing a car is a good choice for you. If you’d prefer to spend your savings in one transaction and not worry about monthly payments, paying for a used car in full may be a better option for you. If you purchase a new car or even a gently used one, you will likely have to take out a loan to pay for the car.
How do I decide what loan is right for me?
Once you’ve decided on your monthly budget, you can start looking for loans. You should keep in mind that experts recommend you pay at least a 20% down payment. Based on your monthly budget, how much you can afford for a down payment, and the length of time that you would like to have the car loan, you can narrow down your loan options.
Another important consideration when looking for loans is your credit score, which will play a large role in determining the options that you have for financing.
Start by looking at your local financial institutions and credit unions. If you’re a member, you can often get discounted interest rates and fees. You can then use a car loan calculator to compare the loans you find. Be sure to factor in all of the associated fees. This will give you an idea of both the monthly payment you’ll be making and the total cost of the loan after insurance.
What are the benefits of getting pre-approved?
Getting pre-approved for a loan can be one of the wisest steps to take when shopping for a car. Often, when you head to a dealership, even with a budget in mind, car sales associates may try to lead you to more expensive options.
Also, they’ll probably offer their own financing solutions, and with some numerical manipulation, can make almost any car fit your budget. This sounds enticing, but it may land you a loan that you can’t afford, typically for over a longer time period.
It’s a better idea to have your monthly and total budget worked out beforehand. That way, you don’t get talked into a car that’s not a good fit for your budget. Plus, having a pre-approved loan in hand can give you some bargaining power!
Dealerships may try to offer you financing via their affiliated financial institutions or loan companies at a lower rate than you have found elsewhere. Just beware of additional fees, and make sure that if you take their offer, it really is better. Again, check out a loan calculator to compare.
How do I get pre-approved?
Pre-approval is when you apply for a loan before you need it. This means that you have the lender look at your finances and credit history and determine your approved loan amount and rates.
Many financial institutions will allow you to apply for pre-approval online or in person. You need to provide financial information, employment information, and other supporting documentation. If you are headed to apply in person, be sure to check out the documents that you will need to bring in advance.
If you plan to apply for multiple loans from different companies, apply for all of them within a two-week period. Every “hard” inquiry into your credit report can lower your score, but if all inquiries are over two weeks, they will be registered as one inquiry on your credit report.
If you’re uncertain about your credit score, you can apply for pre-qualification, which requires only a soft inquiry into your credit and does not affect your score. However, pre-qualification does not guarantee you will receive the loan. It just shows you the rates you will likely be approved for.
Start looking for car loans today!
Once you’ve laid out your monthly budget and figured out how much you’d like to spend per month and in total on your vehicle, you can start looking for loans.
At Baton Rouge Telco, we offer a wide range of auto loans with competitive interest rates. We have experts on staff to help you work through the details of auto loans, so you won’t be alone through the process.