Getting a car loan

Before you start seriously looking at cars to find one you like, you’ll need to make sure you know your credit score and the monthly budget you can dedicate to car payments. This will help you narrow down the vehicles you can look at while working within your means.

1. Find out what your credit score is

Your income and credit report help lenders decide how much they will let you borrow and at what rate. First, check your credit report to make sure everything looks okay. (You can get a free copy of your report every 12 months from each of the major credit reporting agencies.) If you find fraudulent activity, take care of that first.

Next, look at your credit score. The stronger the score, the better chance you’ll have of getting a low car loan rate. A lower rate will save you money on interest. If your score is 600 or lower, and you don’t have the immediate need to buy a car, spend 6 to 12 months working to improve your credit score.

2. Analyze your budget

Take a look at the money you’re earning and what you’re spending it on. Figure out how much you can pay as a down payment upfront and what you can realistically spend on paying back a car loan each month. Don’t forget to include part of the budget for car insurance and maintenance.

You’ll also need to compare your budget with a potential loan. Car loans are usually in 3- to 6-year terms. A longer term will have lower monthly payments than a shorter term for the same total loan amount. However, you’ll be paying more interest on the longer term, which means you’ll pay more money in the end. You’ll have to decide what works best for you and your budget.

3. Compare loans from different lenders

Once you know the budget you can work with, research lenders for a car loan. These could be banks or local credit unions. Make sure you thoroughly look into their offers, including interest rate, hidden fees, add-ons that are optional or that you can get elsewhere, early payoff penalties and how the length of the loan affects what you pay overall.

You can shop for an auto loan through your bank or another bank, credit unions and online. Don’t be tempted to go with what you’re familiar with. Look around so you get the best offer.

4. Get pre-approved

After deciding which lender has the best offer for you, apply for a car loan to see if you qualify. If you do, you’ll be pre-approved for a certain amount of time and money. The amount of money will let you know the maximum you can spend on a car. It could be more than what you budgeted, so compare the numbers to see how much you should actually spend.

Next, it’s time to go car shopping.

Now that you’ve been pre-approved, you can start shopping around for a vehicle. Keep in mind your budget and the terms of the loan so you make an informed choice. Remember, you’ll be paying off the loan for the next few years.

1. Choose the car you want to buy

It’s time for the fun part. Armed with the knowledge of your budget requirements and loan details, head out to look at cars at dealerships or from private sellers.

Your lender might have restrictions on the loan related to new versus used cars, certain car manufacturers, specific dealers, and whether or not you can purchase a car from a private seller.

When you find your perfect car, negotiate with the seller to get a better price. They might even offer you a loan that is better than the one you decided on.

2. Finalize the sale

After settling on the car you want and the price, it’s time to finalize the loan. Depending on the lender you choose, either you will follow up with them or the dealership will contact them to complete the sale.

If you’re buying from a private seller, you will finalize the loan with the lender and pay the seller. This will mostly likely be with cash or a cashier’s check.

3. Begin paying your car loan

Once you have the keys, you’ll start making monthly payments. Depending on your lender, this can be done through the mail or over the internet. The lender might have an online portal to check your balance and payments you’ve made.

Stay on top of your payments. If you get behind, it will affect your loan and your credit score.

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