For a number of people, purchasing a car is a big investment. While paying in cash for the vehicle is what would be ideal, the fact remains that most people will need a car loan to finance their purchase. Given how expensive car loans can be when you factor in interest charges, it’s important you do your due diligence and pick the right loan. Before you start the process of looking for a car loan, here are a few things you should know.
Check Your Credit Score
Your credit score has a significant impact on the rate you get offered, whether you get a loan from a bank or your automobile dealer. That’s why it’s important that you check your credit score before you even start looking for cars. If it is too low, consider working on improving it before you buy your car.
Apply for All Loans Within a 14-Day Time Span
Your credit score drops slightly each time a lender checks your credit history. But, submitting all your applications within a 2-week period will lessen the impact on your credit score. Why, you ask? It’s because all inquiries made in a 14-day period are considered one – thus reducing the effect on your credit score.
Get Pre-Approved and Then Start Shopping
It’s always best to start shopping for a car once you have a pre-approval letter in hand. This offer gives you additional leverage to negotiate with the automobile dealership for a more competitive offer. You can apply for pre-approval to a bank, credit union, or online lender.
Calculate the Costs of The Loan Before You Say Yes
Before you get excited about the monthly payment and agree to the loan, it’s important to check the lifetime cost of the loan. This will include calculating your total interest charges, the closing costs, etc.
Understand How Dealership Financing Works
Sometimes dealership loans can seem really attractive. Deals like huge cash backs and 0% financing offers can make this option seem great, but keep in mind that such offers are typically only offered to people with excellent credit. If you have a low score, you may want to consider applying to a financial institution for a loan.