For most drivers, purchasing a new or used car only becomes possible when they are approved for a car loan. Cars can be expensive purchases. Paying more than $20,000 for a vehicle all at one time, however, becomes impossible. Financing the vehicle through a car loan makes more sense. People new to the market of buying a car might not be sure how to go about acquiring a loan. The process is relatively simple. Locating and being approved for a loan may not be difficult even for those with poor credit.
Receiving Offers in the Mail
Anyone with a current checking, savings, or credit card account likely will receive pre-approval solicitations in the mail. Pre-approvals refer to applications that have been pre-screened by a lender based on credit history information about the would-be borrower. The financial institution thinks you may be a good lending prospect. That is, all indications reflect an approved loan won’t be defaulted upon.
You would still need to complete a full application. In general, a person who receives a pre-approval notice for an auto loan likely won’t be denied. As long as nothing negative turns up during the official approval such as current low income or a recent negative mark on your credit history, the application should receive an approval.
Seeking Out the Lenders
Not every would-be auto loan lender searches for you. The work to locate a lender falls on your shoulders. The work isn’t all that hard. Look for local and even distant banks, credit unions, and financing companies. Contact the lenders and inquire about borrowing options. Commonly, you would be asked to fill out a pre-approval application.
Looking for auto loans online makes things a lot easier. Services exist that ask you to fill out a preliminary application that will be submitted to potential lenders on your behalf. Several loan offers may then come in and you can choose the preferable one.
Borrowing from the Seller
Car dealerships may also finance loans on behalf of those interested in a vehicle. The dealer may be more willing to approve a loan since the loan equates to a sale. The interest rates on a dealership’s loan might be high, though. Looking at loan offers from other lenders makes fiscal sense since this may lead to finding a better, lower interest rate. Lower interest rates, ultimately, make the purchase of a vehicle cheaper over time.
The Bad Credit Borrower
Persons with a poor credit history frequently find traditional lenders see them as too much of a risk. So, their car loan applications suffer denials. Hope still exists for these borrowers. “Second chance lenders” target these customers. Such lenders do accept the applications of borrowers with bad credit. Be forewarned, due to the significant risk the lenders take, high-interest rates become unavoidable. Those with limited options may be forced to accept such a deal.
Completing the Actual Application
Regardless of the source of the loan, the application usually requests the same information. Personal info such as name, address, contact information, and social security number are required. This information is necessary to run a credit check to determine your ability and likelihood of paying back the loan.
Employment information remains another important item on the application. How much you earn in relation to your expenses also reveals creditworthiness. Questions about expenses may include current rent or mortgage fees, credit card payments, and more. Ultimately, the lender can only approve a loan to someone who can afford the repayment. Otherwise, the lender may lose money due to a default and repossession.
Filling Out the Application
Rushing through the application won’t be a good plan. Mistakes occur when sloppily completing the application. A poorly-composed application may lead to approval delays or outright denials. Take the necessary time to carefully and accurately complete the form. Doing so only helps the situation.
The Down Payment
A lender may require a down payment as a condition of the loan. A down payment refers to a lump, up-front sum paid towards the purchase of the car. With a $10,000 car, a $2,000 payment means you only need to borrow $8,000 plus any additional added taxes or fees.
Refinancing the Loan
What happens if you are approved and don’t like the terms or interest rates? Refinancing the loan, procuring a new loan with better terms to pay off the old loan, remains an option. So, issues with a not-so-perfect loan can potentially be addressed in time.