There aren’t many people out there that enjoy the process of buying a car. With all the options, information and negotiations, it’s a stressful process. For many people though, the real nightmare begins when they think about applying for a car loan.
The last thing you want to do is go through the whole process of finding the vehicle you want and agreeing on a price just to get turned down for auto financing. That’s why it is so important to get pre-approved, and it doesn’t have to be as stressful as you may think.
Just follow these five easy steps to getting an auto loan, and avoid all the problems most people go through!
#1 - Look at Your Credit History
Before you do anything else, you need to know your credit score and credit history. You can learn a lot about the future steps you may need to take by checking your credit report.
Hopefully, you’ll find that you have great credit. If so, you will have access to lower interest rates and possibly lower premiums. If you see that your credit is lacking, don’t worry too much yet. A poor credit score does not mean that you’re doomed!
It is very important to look over your credit report thoroughly. It’s fairly common for errors or other unusual activity to show up on your credit history, so it’s essential that you find these issues and get them resolved. You can dispute errors that show incorrect late payments or wrong balances.
Again, if you’re credit score looks low, and your credit history shows a few past problems, it’s not the end of the world! These things won’t prevent you from getting an auto loan. Especially if you use Trips Auto!
A lower score can, however, mean that you may pay a higher interest rate on your vehicle loan. If you have the time and want to get a lower rate, you might want to consider paying off some credit card balances and other smaller loans.
#2 – Understand Your Budget
It is absolutely essential that you understand your budget. You need to ensure that your new car payment will not affect your financial goals. While you may be able to pay the bill for a larger car payment, it’s not worth it if it keeps you from hitting your monthly savings goals.
If you’ve never created a budget, it can seem like an overwhelming task. However, it’s really not that difficult, and it will pay big dividends to your financial life. Just take your after-tax monthly income, then start deducting your normal monthly expenses and monthly savings goal.
If you have bills that don’t come out on a monthly basis, you can just pro-rate them. For example, a yearly bill should be divided by 12 to get your monthly expense.
You also need to account for the other costs of a vehicle. These costs range from auto registration to insurance, regular maintenance, oil changes and general repairs.
#3 – How Much Car Can You Afford?
Once you understand your budget and account for these costs, you can easily find your limit for a monthly car payment. Most people follow the general rule that ten percent of your after-tax income should be your limit for a vehicle.
For example, let’s say you earn about $60,000 CAD per year after taxes. That means your monthly take-home is about $5,000 CAD, and you should never spend more than $500 CAD on a monthly car payment. Depending on your budget, that amount may need to be significantly lower.
Once you know your monthly payment limit, you can find an auto loan calculator or talk to a professional to help you determine the size of loan you can afford.
You should also consider the length of time you want to be paying off your auto loan. Most vehicle loans have terms between three and six years in length. Longer loan periods allow for lower monthly payments, but can also cause you to pay more interest over time.
#4 – Get Pre-approved for Your Auto Loan
Before you start looking at vehicles and discussing prices, you should always get pre-approved for an auto loan. This step can be very quick and easy.
Most pre-approved auto loans are viable for a limited amount of time, so this step should be saved until you’re almost ready to start shopping for your used car.
When you apply for pre-approval, the lender will need to run a credit check. If your credit history shows too many of these, it can slightly lower your credit score. However, if you keep all your applications within a period of two weeks, these credit checks will show up as only one inquiry on your credit history.
During the preapproval process, your lender will determine how much money you’re eligible to receive and what interest rates you qualify for. That way, you completely understand your financial situation before ever stepping into a dealership.
If you’ve been pre-approved, you really shouldn’t have any issues receiving your final auto loan. However, preapproval does not necessarily guarantee that you will receive the auto loan you want. In rare cases, disagreements on vehicle value and incorrectly-entered information can prevent the approval of an auto loan.
Even if you can’t get pre-approved for some reason, there is still hope. You can increase your down payment to reduce the size of the loan or ask someone to cosign on your auto loan!
#5 – Go Car Shopping!
Now that you’ve done all of the first four steps, you’re ready to start your search for a vehicle. Take some time to do your research and start narrowing down your choices. Find out how much the vehicles you want are truly worth through a site like http://www.autotrader.ca/. Then compare prices and find the best price you can!
These five easy steps to getting an auto loan will prepare you to make the right decision, and they’ll eliminate a lot of the stress along the way!
Canada Credit Financial’s blog is a free resource for credit challenge customers who have the desire to improve their lives by acquiring the knowledge required to increase their credit score. Our team understands that even good people are often forced to go through tough times. A divorce, a loss of income, an illness, or other similar circumstances out of your control might have put a toll on your credit history and your financial life. We want to help by giving you access to quality content that will provide you with the know-how, the tools, and the strategies to get back on your feet and enjoy the freedom of a healthy credit score.
Our writers specialise in automotive financing. To our knowledge, the purchase of the right vehicle, at the right price, financed from the right lender, at the right interest rate provides one of the fastest and most robust ways to rebuild your credit history. It’s impossible to erase bad credit, but rebuilding a solid and diligent payment history through a vehicle financing is a great way to separate yourself from your past credit bumps to enjoy a better future.
You can also use the information to protect your current credit, avoid pitfalls, and educate your children so they are prepared to enter the world equipped with the knowledge that will give them an edge and will allow them to fulfil all their dreams.
Credit is a great tool if used properly. At Canada Credit Financial, we want you to control your credit; we don’t want credit to control you.