The experience of applying for a car loan does not need to be stressful or intimidating. An understanding of the steps you need to take and proper preparation before filing the paperwork can help simplify the process. Follow these steps while applying for a car loan to take the pressure off and make getting auto financing at least a little easier.
Step One: Credit Score
You need to know your credit score before applying for a car loan. Every consumer is entitled to a free annual credit report from each of the three credit bureaus. Your credit score will give you a general idea of the kind of car loans you qualify for based on credit worthiness, which will save you the time and hassle of submitting car financing applications only to get repeatedly rejected. A credit rating below 620 tells you that you will most likely need to get a subprime car loan, while a score above 700 opens the door to loan options with lower interest rates and more flexible terms. Look for errors on your credit report that may need correction or debts that be repaid as a way of improving your credit.
Step Two: Realistic Budget
Everyone has a dream car they would love to own, but that doesn't mean it fits into a realistic budget. Add up all of your monthly expenses and compare the total to your monthly income. A detailed comparison of expenses to income will show you clearly how much you can afford to spend on monthly car payments. Keep this available budget in mind while shopping for the car and considering your financing options. This step will stop you from getting in over your head with loan payments you can't actually afford.
Step Three: Organized Paperwork
You will need specific paperwork for a loan application, and you should have them organized and ready to go ahead of time. Make copies of your recent income tax returns, pay stubs and bank statements that prove your source and level of income. Find out if you will need to provide additional proof of residence or car loan references that give lenders points of contact in case they cannot reach you. Instead of scrambling to find these necessities halfway through the loan process, have them on hand before you start the car loan application.
With some planning and organization, the car financing process can be relatively stress-free and very manageable. Make a budget, have a handle on your credit rating and get your documents in order before setting foot in a car dealership.
* Image courtesy of freedigitalphotos.net
