Buying your first car, whether it’s brand new or previously owned, is a huge and exciting milestone in life.
However, navigating the world of auto loans is also incredibly complex. For those who are unsure about how to get a car loan, it’s important to get educated — and pre-approved, before going to a dealership. This makes it easier to stay within budget while searching for the right car.
This auto loan guide serves as a great educational resource to help first-time buyers get an auto loan. From understanding how to gauge financial position to learning what to expect throughout the buying process.
Have a Vehicle in Mind
Whether a consumer plans to buy a new car or opt for a pre-owned model, the make, model, and year of the vehicle will impact the car loan interest rate and ultimately the final cost. Before taking any other steps, it’s important to research options and be willing to compromise if the cost doesn’t align with budget limitations.
Consider how much money can reasonably be paid as a down payment as well as available monthly budget. Don’t forget to factor in related costs, such as fuel and insurance.
Know Your Financial Position
Once there’s an idea of how much the desired vehicle will cost, it’s time to start the process of finding an auto loan.
Banks consider several financial elements when evaluating an application for a car loan. Both the anticipated down payment and desired monthly payment amount matter. Lenders want to know that buyers have considered what they can afford, in addition to having the savings and income to support it.
One way this is determined is by looking at current income, bank accounts, in addition to credit history and credit score to see how potential buyers have managed money in the past.
Therefore, first-time buyers should check their credit scores before shopping for car loans, as lower credit scores will typically result in higher interest rates and higher payments.
Consumers can get free credit reports once a year from the three credit bureaus — Equifax, Experian, and TransUnion, without impacting their credit scores. Financial institutions can often perform a “soft” credit check for existing customers and provide their three-digit credit scores, a necessary detail when comparing auto loan rates online before talking to lenders.
Note: If credit scores are too low to qualify for an auto loan or to qualify for the amount of money consumers need to borrow, it may be necessary to improve credit ratings through responsible repayment of current loans and credit cards.
It may also be possible to supplement loan amounts by paying a larger down payment amount or asking someone, such as a parent, to cosign the loan.
Know the Difference between Monthly & Total Cost
Once buyers know what they want and have their financial paperwork in order, it’s time to shop for an auto loan.
During this step, it’s important to be methodical and take plenty of time. Remember, qualifying for a particular loan or interest rate doesn’t automatically mean it’s the best deal possible. In fact, many dealerships fool consumers into paying more in total by setting up loans on long-term repayment plans that last more than 60 months.
This process decreases the monthly payment but results in paying hundreds or thousands of dollars more in interest over the life of the loan.
The best way to avoid this trap is by taking advantage of the pre-approval process.
Contacting lenders for pre-approval before visiting a dealership allows buyers to control both their monthly and total costs. Those who aren’t fixated on a certain model or trim have the freedom to calculate the loan details first by playing around with principal amounts, terms, and interest rates.
It’s also quick and easy to contact a variety of lenders to compare offers and then head to the dealership with a loan that is ready to close.
Get Preapproved for an Auto Loan Today
When you’re trying to figure out how to get a car loan, consider working with HRCCU. We offer customers a local lending option that includes reasonable loan terms and interest rates.
Our finance professionals can help you understand the auto loan process and qualify you for preapproval. This can leave consumers feeling confident in their ability to afford their desired vehicle. Contact us today to start the conversation about how to finance a car with HRCCU.
