Buying a car is a major milestone, both personally and financially. Since most people can’t purchase a car outright, there are many financing options available. Financing a car can be very overwhelming at first, but it also will give you access to a wide range of great cars you otherwise would not be able to afford. With some research and planning, the process of financing a car can be simple. There are also many resources available nowadays, such as credit check software and auto loan calculators, that make the process less confusing. Here are five basic steps to financing a car.

  1. Check your credit.

Your credit score will almost directly determine what kind of a loan you can get and how much you’ll be approved for, so it’s important that you know what it is before starting the loan application process. You can check your credit score online – many banks offer credit score reminders, and there are independent agencies as well where you can check it. Contrary to popular belief, checking your own credit score doesn’t actually hurt it. It’s called a soft inquiry, which doesn’t have any impact on it. Hard inquiries are when third parties check your score for approval purposes, and they can ding your credit score very slightly, but for big purchases, it’s generally not something to worry about.

If your credit isn’t great, take some time before looking for a car loan to work on getting it up. Be sure to make all your payments on time, and consider consolidating your debt if you owe money in a variety of different places. Talking to a financial advisor may be beneficial in this scenario. This will be very beneficial in the long run, because a good credit score can help you get approved for a lower interest rate, which will save you money as you’re paying down the loan.

  1. Consult with multiple loan providers to get pre-approved.

Now that you know your credit score and are prepared for how loan providers might react to it, it’s time to start shopping around for potential loan providers. While your car dealership should be the first place you look, it’s not the only place that can offer you a loan. Car dealerships often offer the best terms, but in many cases they also have higher interest rates or other factors that are going to ratchet up your monthly payments. Talk to local banks and credit unions to see what they can offer for an auto loan. Many banks actually have their own auto loan calculators that will make this step very easy. It may turn out that they offer better terms that fit with your financial circumstances, making them the smart choice when compared to a car dealership.

  1. Decide on your loan terms.

The next important decision to make is how much you can afford to spend on a car each month. It’s crucial that you be realistic while making this decision, because you’ll be spending money on your car for the next several years. You’ll also need to think about how long you want to be paying off the car and approximately what interest rate you’d like. If your monthly payments are low, that means you’ll spend a long time paying off the car, which means you’ll pay more in interest. Alternatively, you could opt for higher monthly payments but end up paying less in the long run because interest won’t accrue over time. It’s important to have a general idea of what you want before finalizing things with your car dealer and your loan provider. If you’re struggling to calculate the best terms for your loan, try using an online auto loan calculator for help. Depending on your credit, you may not be able to get the exact terms you were looking for, but planning ahead of time will make it easier for you to negotiate financing a car. 

  1. Choose your vehicle.

The most fun part of financing a car is, well, the car! The next step is to go shopping and choose a car that’s a good fit for you, both practically and financially. When financing your car, it can be incredibly tempting to select something that’s slightly above your financial means because you’re receiving a loan. This should be avoided at all costs – although car shopping is exciting, it’s still essential that you be realistic and pragmatic. A good way to do this is set a budget, and then look at a wide range of cars within that budget. Your car salesperson will likely try to get you to look for a vehicle slightly outside of your means, so it’s very important that you stand your ground and stick to what you can afford. When you find a variety of options that are realistic, it will be less tempting to make a purchase you can’t afford. Once you’ve chosen your vehicle, be sure to run it through an auto loan calculator to make sure it really fits in your budget. 

  1. Finalize the sale and make your first payment.

The last and most satisfying step is to finalize the car sale with your dealership and your loan provider. You’ll need to make a down payment to get started, usually at least 10 percent of the vehicle’s total cost. You’ll also need to completely define the terms of your car loan and go over everything with your lender. Make sure you review everything and ask questions about anything you aren’t sure about to make sure you don’t end up paying more money than you should. Financing a car is always a very exciting time, and taking these steps to do things right will ensure that you get a car and a loan that work well for your situation.

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