If you’re trying to get approved for vehicle financing, it’s not a good idea to simply walk into the dealership and start shopping for your next used car. You need to do some preparation so that you can place yourself in the best possible position for an auto loan.
When you apply for a car loan, you should be able to provide the correct documentation to help the lender make a favorable decision for you. You should also get a credit education so that you understand how your credit score and credit history can affect interest rates and other terms of the auto loans you may be offered.
These are the five most important things you need before you apply for your car loan:
#1 - Proof of Income/Earnings
Providing proof of income and earnings serves as a requirement for most vehicle financing companies. However, even if they don’t require this proof, it’s a very good idea to bring it as further information to obtain lower interest rates.
The most straightforward proof of income method for most people is a pay stub. The pay stub mus
t be less than one month old, and it should show your year-to-date income.
For those who are self-employed, this process can be a little more complicated. Self-employed individuals will need to provide bank statements and tax returns to prove income. Your bank statements should go back at least three months. Although some auto financing firms look for five years of tax history, most require only two years.
If you have any forms of supplemental income, you should consider showing proof of these earnings as a tool for enhancing your borrowing power. An example of supplemental income could be rental payments from your investment property.
#2 – Proof of Insurance
Current law requires that all vehicles on public roads have insurance. That means that your lender has a responsibility to determine whether or not you have proper insurance coverage before signing off on your auto loan. If you already have auto insurance, you should be prepared to give the documentation to your lender.
If you don’t already have auto insurance, you will need to get in touch with an insurance company to obtain a policy before applying for a car loan. Some dealerships will be able to help you secure insurance with a company; however, it is important to remember that working through your dealer will prevent you from shopping around for the best rates between different insurance providers.
#3 – Residence Verification
Your lender will be required to verify your address of residence during the loan application process. There are several different ways to prove your address of residence. You can provide a copy of your utility bill or any other form of business correspondence received at the current address.
It is also important to note that you will have to show a valid driver’s license before you can actually drive away with the vehicle you plan on purchasing.
#4 – History of Personal Credit and Finance
The history of your personal credit and past finances is an extremely important part of the auto loan application process. For good reasons, lenders want to know as much as possible about these histories.
Your current debt-to-income ratio serves as one of the most important factors for auto financing. This ratio represents that percentage of your total monthly income (before tax) that gets eaten up by your current debt payments.
Your credit history and credit score are also key factors to understand when applying for a car loan. You should get a copy of your credit history from one of the major credit bureaus so that you can compare with the history your lender uses. You should also know your credit score and what that score means for obtaining reasonable loan terms.
It is important to be aware that, with your consent, your lender will definitely be looking over your credit and finance history. That way, you can be prepared for any issues that may arise.
#5 – Detailed Information about the Vehicle You’re Buying
Before you apply for a pre-owned car loan, you should obtain as much information as possible about the specific vehicle you plan on buying. Your lender will be required to document information such as the vehicle purchase price, the identification number of the vehicle, the year the car was manufactured, the company that manufactured the vehicle, the model of the vehicle, the original title and any potential liens that may be on that title.
When a dealership sells you a pre-owned vehicle, they will almost always provide a comprehensive buyer’s guide for the specific car you’re purchasing. This guide should include all of the information needed to apply for a car loan, as well as your responsibilities and rights as a vehicle owner.
You should invest the time to properly review this guide to ensure that you understand everything before signing a contract. If you plan on trading in your current vehicle as part of the overall agreement, you should bring all of the information for this vehicle as well.
Tips to help you Get Approved
Getting approved for auto financing is a big financial event, so it’s worth your time to do whatever you can to get the best auto loan possible.
Since your lender will be checking your credit history, you should know what they might find. You can request a credit report from each of the three major agencies once a year for free. This request will your overall credit score, and it will give you valuable information for the approval process.
Once you have your credit report, take the time to look everything thoroughly. If you find any incorrect or missing information, you should follow each bureau’s instructions for disputing these errors on your credit report. Make sure that you remove all old accounts and mistakes in your data.
Before applying for an auto loan, it’s always a good idea to some of your credit cards and pay off as much debt on these cards as you can. If you have a substantial amount of revolving debt, it may also help to close some of your credit card accounts. However, be careful not to close the older credit card accounts because the total average age of your accounts plays a role in determining your credit score.
Any time you apply for auto financing, you’re basically asking your lender to take a risk on you. By bringing these essential items and knowledge with you, you can make it easier on your lender and get a favorable result!
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.