If you’re looking at cars at a used car dealership, odds are that you’re going to need a car loan. Unless you have a stockpile of cash in your bank account, you will need to borrow money to own one of these cars. Here are the five steps you need to follow in order to get a car loan.
Step 1: Check your credit
The first thing you should do it check your credit report. The better your credit is, the cheaper it is to borrow money and secure auto financing. With a higher credit score and a better credit history, you will usually get a lower interest rate. You might also qualify for lower car insurance premiums too. A lower score won’t necessarily prevent you from obtaining a car loan, but it might raise your interest rate.
Step 2: Determine your budget
It’s essential to have a budget before you start looking for a car loan. You want to make sure your loan payments will fit with your monthly budget as well as your long-term financial goals. If you don’t have a budget yet, look at your monthly income after taxes as well as how much money you want to put into savings each month.
Step 3: Know how much you can afford
Once you create your budget, you need to figure out how much you can afford to add to your expenses every month. For most, the most frequently searched vehicle price range is $5,000 or less. A good rule of thumb to follow is that you shouldn’t spend more than 10% of your income on a car.
Step 4: Get preapproved
Now that you know how much of a monthly payment you can afford, you’ll want to get preapproved for a car loan. You can research potential loans and compare the rates, lengths of time, and interest rates to find the best deals. Some dealerships offer financing options right on site, so you can research local dealerships too.
Step 5: Go shopping
Now, you’re ready to start looking for a new car. Look for cars that are reliable and fit into your budget. You should also consider things like size, color, gas mileage, and extra features you might like.
Follow these five steps and you’re on your way to getting a car loan. Remember that the more research you do, the better.
