If you’re in the market for a car, you’ve probably considered financing. Many people pay for their cars using car loans rather than paying upfront in cash. Car financing can help you get behind the wheel of a new ride that you wouldn’t otherwise have been able to afford.
The process of getting a car loan can seem a bit confusing. But have no fear! We’ve created this comprehensive guide to help you learn how to finance your new vehicle.
Step One: Know Your Finances
Before you go out and shop for a car, you’ll want to take some time to understand your finances and learn how that relates to car shopping. There are two key factors you’ll want to understand. First, how good is your credit. And second, how much car you can afford.
Many loans are limited by your credit score and credit history. You’ll want to know approximately what your credit score is so you can have informed conversations with lenders. And, if you are planning to buy a new car soon, you should try to improve your credit beforehand, as it can significantly affect your car loan option.
It is also a good idea to have a solid grasp of your budget, both overall and on a monthly basis. You can use the calculator on our website to help you calculate how much car you can afford.
Step Two: Learn Key Loan Lingo and Understand How Car Loans Work
There are a couple of words you’ll hear frequently when shopping for a car loan. Understanding the definitions of these terms and how they make a loan a better or worse deal is vital.
APR: APR is also known as the annual percentage rate. The APR is the total cost per year to borrow money, including the interest rate and other fees.
Term: The term is another word for the length of the loan or the time it will take you to repay the loan.
The APR and term jointly determine how much it costs to borrow money. The higher the APR, the greater the cost to borrow money, and vice versa. When you are searching for a loan, use these as points of comparison. For example, consider loans with the same APR but different term lengths. The loan with the longer term will cost you more because the loan will accrue interest for a longer period of time, thus costing you more over the life of your loan.
Step Three: Shop for a Car Loan
The best way to get a good deal on a car loan is to shop around! You can find car loans in many places, including online lenders, banks, credit unions, and dealerships. Securing the lowest APR means considering several loan options from several dealers. Dealerships do traditionally mark up the APR. Finance departments at dealerships are commissioned sales.
A good strategy is to keep a list of the features of the different loans you find so you can compare. Be sure to keep track of the APRs, terms, and other details important to you. Having this information on hand will make this decision a bit easier.
Step Four: Get Pre-Approved for Loans
Before you head to the dealer, it’s a good idea to get preapproved for a few loans. Pre-approval is a process whereby a lender indicates how much of a loan you will most likely be approved for based on your credit score and other factors.
While the process differs from place to place, in general, you’ll submit documents that detail your personal information and financial history. In return, you’ll receive documentation describing the loan you’ll likely get. This not only helps you to compare loans but also gives you bargaining power at the dealership.
Step Five: Head to the Dealer and Negotiate
With pre-approval in hand, you can head to the dealership confident that you have a strategy that takes into account your needs and finances. In addition, now that you know the best deals you can get from other lenders, you are in a position to negotiate with the dealership on the financing that they can offer you.
Members of Telcoe can shop online and receive discounted pricing using www.telcoe.truecar.com.
Step Six: Finalize Your Car Loan
Once you have your car picked out and are ready to purchase, you’ll want to decide on the loan that is right for you. Make sure you follow the instructions from the lender on how to accept the loan offer. It’s a good idea to take a photo of the vehicle purchase order, have it emailed to you or ask for a copy that you take with you when you leave the dealership.
When you finalize your loan, you can also decide whether you want any add-ons. These oftentimes include GAP insurance, extended warranties, payment protection, and depreciation protection.
Get a Car Loan You Can Pay Off
Telcoe Federal Credit Union has great rates that make it easy for you to get a car loan fit for your lifestyle. Plus, we offer optional add-ons that might better serve you for the life of your loan.
Keep in mind that financing a car means having a car payment. You’ll want to ensure that you make your car payments on time every month, as this will help you build your credit and avoid late fees and other penalties.
One way to make paying off your car loan as pain-free as possible is to not overbuy. Do yourself a favor and determine exactly how much car you can afford. To learn more about this, you can check out our blog post on the topic below.