Rent. Money for new car concept with glass jar labeled new car filled with money.
If you’re in the market for a new car, the financing process can be intimidating. But experts say arming yourself with knowledge and understanding the different steps involved can make the process much less daunting. The following will help you make the most of your finances.
- Determine your auto loan budget. The question of how much car you can afford is not a simple one, especially considering it can be a major investment. The best answer to that question is based on your budget and your ability to repay the loan. Consider these three main steps.
- Determine your current and future financial picture. Look into your current earnings and how likely it is you will continue with your current line of work. If you have a big change ahead, account for it.
- Consider the full cost of ownership. Factor in maintenance, fuel and insurance costs.
- Evaluate other costs. To make a financially sound decision, keep a budget and seek to better understand additional costs, like other debt payments.
- Check your credit report. The first step in getting approved for an auto loan should be reviewing your credit report for errors. Mistakes like duplicate accounts, missing payment history or misspelled names can all lower your credit score and cause you to be denied. A credit report contains every account you’ve had in the past seven years, including payment history, how much you owe and if you’ve been sued or declared bankruptcy.
Credit reports come from the three major credit bureaus: Equifax, Experian and TransUnion. While you can typically only pull these reports once a year for free, you can currently pull them on a weekly basis for free using AnnualCreditReport.com.
- Check for errors. Mistakes, like accounts that are listed as paid off when they aren’t, or late payments that were reported incorrectly can all impact your credit score. Check to ensure everything is correct.
- Be sure any changes are requested 30 days or more before you apply. It can take up to the full 30 days to act on your request.
- Don’t open new accounts; that will temporarily lower your credit score. It’s better to hold off on opening additional accounts until after you have secured your auto loan, if possible.
- Limit credit card use. A high credit card balance can significantly affect your credit score. If you can help it, avoid adding to any revolving credit balances and stick with cash payments.
- Apply for auto loan preapproval. You can get the pre-approval process done before going to the dealership. You could be offered a better rate than the dealership’s financing office because they add a commission to rates offered by their lenders. Pre-approval is also a great way to know exactly how much you will be able to borrow. This allows you to negotiate as if you were buying with cash once you get to the dealership. It’s recommended that you apply for pre-approval with at least three lenders to ensure you’re getting the best deal.
- Shop for your car. Look up different vehicles that match your needs and go to car dealerships to test drive them. Talk with salespeople and compare your options to understand what’s out there, although there is no need to share your pre-approval amount with the salesperson. Before you step onto the dealership’s lot, check sites like Edmunds and Kelley Blue Book to compare different vehicles and how much they’ll cost based on make, model, trim and even your location.
- Finalize the auto loan. Once you’ve found the right auto loan, confirm the terms. The lender may ask you to send in any required paperwork, including proof of insurance, before you settle on the terms and sign the documents.
Once agreed upon, sign the documents. If you have a co-signer, that person should also sign the documents. If you have an auto loan from the dealer, the dealer will provide the auto loan contract with the lender’s contact information.
Next, get the vehicle title and registration. You must have your vehicle title sent to the lender and the vehicle’s registration updated to your name. The dealership will usually take care of this if you’re buying from one. If not, work with the seller and DMV to update the necessary documents. You’ll also need proof of insurance.
After you get the loan and complete the sale, you can take possession of the vehicle.
Bottom line: When you’re in the market for a new car the financing process can be intimidating, so arm yourself with knowledge. If you’re not sure how much you can afford, check your credit score before you visit the dealership.