Top 3 Things You Need to Finance a Car

Planning to finance your new car purchase? If so, you’re in good company. Nearly 85 percent of car buyers in the United States used some sort of financing to buy their vehicle. If this pertains to you, don’t stress about the process. The following information provides everything you need to know when meeting with a prospective lender.

A Budget

It sounds odd that you’d forget to consider a budget before purchasing a car, but many people don’t think about it. They simply have their sights set on a certain car without regard to its cost. However, this approach often leaves buyers in financial ruin or consistently behind on their payments. Before you set foot in a bank or financing office at a dealership, think about whether you want low payments or a shorter term. If you aren’t sure where to start, use a car budgeting calculator. If credit is a concern, take into account your interest rate, and don’t get stuck paying more in interest than the actual principal.

Pay Stubs/Proof of Income

Lenders don’t give car loans to just anyone. They want to see that you’re working, and that you make enough money to pay your monthly note. As a result, one of the first things they’ll ask for is your proof of income, pay stubs, or tax returns for up to the past two years. Then, they take this information and compare it to your current debt situation. This is also known as your debt-to-income ration, and it plays a vital role in whether you get approved or not. When including the payment of your vehicle, a lender typically doesn’t like a ratio above 36 percent. If you’re on the cusp of this ratio, try paying down some debt before securing the loan.

A Thirst for the Best Deal

If you were applying for jobs or schooling, you wouldn’t put all your efforts into a single position or institution. The same goes for car loans. One of the best things you can do to get a perfect term and rate is shop around with dealers, banks, or credit unions. Many times, they’ll have specials that save you money. It’s also important to see if you can obtain a pre-approved loan. A huge and catastrophic pit fall for many buyers is that they allow lenders to do a hard inquiry of their credit, causing your credit score to fall. When in doubt, ask if they’re going to pull your credit. It’s in your best interest to keep the amount of inquiries at a minimum.

This isn’t everything that you’ll need to obtain a car loan, but it does give you a healthy start about how the process works and what you can do to make everything run smoothly. Most of all, don’t forget that trust between you and the lender is a must. By forging a comfortable relationship, you’ll typically have a great experience.

Image via Flickr by GotCredit

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