Buying a car can be a big achievement. The used car market, in particular, has grown in pricing in the past few years, making affordability a challenge for aspiring car owners in both the new and secondhand market.
While one’s first instinct may be to negotiate with the automobile sellers for a better sticker price, working with a car loan financier to secure good terms can also have a large, positive benefit on one’s wallet.
By breaking down the large upfront cost of a car into affordable payments over a longer period, buyers can secure their dream vehicle. Below are some important steps to consider before applying for a car loan:
1. Credit Score
The first step would be to check your credit score. While there is usually no minimum credit score needed to purchase a car, those with higher scores will usually get the best loan terms. Buyers with a 750+ credit score will oftentimes be able to secure the most competitive interest rates on their car loans.
Those with 660+ credit scores will usually also be able to secure great loan terms, which will help decrease the amount of total money paid over the lifetime of the car loan. Many banks now offer credit monitoring services, and it is also possible to check your credit score through organizations like Credit Karma.
2. Determine Budget and Total Cost of Loan
Next, it is critically important to determine the overall affordability of the loan and your budget. This includes determining the amount of money one can afford in monthly car payments, as well as estimating how much one intends to spend on a car over the lifetime of the loan.
Since loans will include both the principal amount borrowed and monthly interest compounded over the lifetime of the loan, buyers may find that purchasing a car with a slightly lower sticker price will work better with their budget.
3. Compare Lenders
There are many potential financing institutions for car loans, and it is important to shop around a little to find the lender that is offering the best deal. If you have an existing car loan but want to get a loan with better terms, according to Lantern by Sofi, using their platform for comparing lenders for car loan refinancing can “Lower your car loan payments—and free up some cash.”
4. Get Preapproved
After using a service like Lantern by Sofi to compare rates across different lenders, it is important to get preapproved before heading to the dealer. This way, buyers will go into the buying process with a clear understanding of the types of vehicles they can afford, which will help them stay within their budget.
Buying a car is an exciting step in many people’s lives, but coming up with the money can be a daunting task. By working closely and smartly with lenders, it is possible to secure effective financing before one goes to purchase a car, which can ensure affordability and lower stress.