Steps to Get Your Auto Financing Right
Before you can get approved for a car loan, you need to know your financial situation. You will want to find out your credit score and understand what your payment options are. Understanding your financial status will make the process easier and more successful. Luckily, there are several tools available to help you determine what you can afford and how you can make it work.
Credit score
The credit score is an important part of your auto loan application. The score is determined by the FICO(r) scoring model, which is based on information from your credit report. Lenders use this score to determine the likelihood that you will make all of your payments. The higher your score, the more favorable your loan will be.
In general, people with a credit score of 720 or higher are considered to be prime. However, if your score is lower than that, you can still secure financing. Lenders have different interest rates for people with different credit scores. The best rate will depend on your score, but you can always work on raising it. Just a few points will make a huge difference.
Car model
If you want to buy a car, it is important to understand your payment options. Often, automakers offer special financing incentives like cash rebates, low interest car loans, and more to entice consumers. Choosing the wrong financing option can end up costing you more money than you realize. To help you make the best decision, consider using a car loan calculator. This tool will help you determine the amount you can afford to pay per month, as well as the total cost of the vehicle.
Loan terms
Choosing auto loan terms is the key to getting the best deal. The length of the loan (in months) and interest rate are important, as the longer the loan, the more you’ll have to pay in total. A shorter term reduces your monthly payments, but you will pay more interest over time. Longer loan terms can also put you in the position of negative equity, so it’s important to choose wisely. Loan terms typically range from 12 months to 84 months.
Another thing to consider when choosing auto loan terms is your income. If you make enough money and have good credit, you may be able to obtain financing for a new or used vehicle over a shorter period of time. If your income is higher than your monthly payments, you may want to opt for a longer loan term.
Pre-approval process
The pre-approval process is a process in which lenders review your financial documents and determine whether you’re a good candidate for a loan. Though pre-approval isn’t the same as pre-qualification, it can make the process more smooth and avoid surprises. It can also help you choose the type of vehicle you want without having to deal with high dealership markups.
A lender’s pre-approval process starts with reviewing your credit history and determining your income and expenses. They may also ask you to provide proof of your current employment or housing payment. In addition, many lenders conduct a soft credit pull to determine your current financial situation and determine if you’re a good candidate.