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10 Things You Should Know Before Applying for Auto Loan

Updated on May 24, 2016

A new car comes with delight to many buyers and we always long for that day when we will receive the keys for a new car. But just like any other costly investment, buying a new car is challenge undertaking to many especially where financing has to be arranged.

With the current economic challenges, buying a car in cash or out of own savings is almost impossible and the only option available for many car buyers is through auto loans. There are many sources willing to offer auto loans to car buyers is through auto loans.

There are many sources willing to offer auto loans to car buyers including banks, auto dealerships, online lenders, and credit unions. Before you sign for a new auto loan, it is important to understand that auto loan is a long-time financial commitment that can run into years and that it will be a major part of your monthly finances. If you are planning to sign for auto loan, here are ten key guidelines to help you assess your possibilities carefully.

Auto Loan
Auto Loan

1. Do You Really Need A Car And What Type

Before you consider auto loan it is important to evaluate your need towards the car and whether you really need to buy a car or lease. Also, consider whether you need a new car or a used car, which type of car and car specification.

It is very difficult to determine how long you will keep the car, such factors may help if you need to purchase a car. Always remember; never buy a car out influence.

2. Shop Around For Best Auto Loan

Through the excitement from the prospect of owning a new car, many car buyers overlook this key point of spending some time shopping around for the best auto loan deals. The crucial point when shopping around is that you don’t have to get your auto loan from the dealership.

One of the common mistakes that car buyers make is to assume that the dealership can arrange them the best auto loan. The best approach is to shop for the auto loan separately from dealership as there are many sources to check for auto loan.

This approach will give you an opportunity to consult with different lenders making you more knowledgeable with bargaining power negotiate for better auto loan deals.

Tips for Before Applying Auto Loan
Tips for Before Applying Auto Loan

3. Affordability for Auto Loan

Many car buyers and especially first-time buyers make assumption that the quoted car price is all what they need to consider an auto loan. However, there are other many aspects concerning auto loan that need to be considered before a conclusion is made.

An auto loan is not a short term commitment and so, you need to consider other costs that come with it such as loan interests, service charges, insurance, the duration of loan repayment and what financial implications it will have in the long run.

Consider what is best value for you between super-low dealers financing or cash rebates. Car buyers can draw important information on this through consultation and by utilizing several auto loan calculators available online.

4. Review your Credit History

A good credit review can increase your chances of getting a better auto loan financing. Although bad credit financing is available and car buyers can actually obtain auto loan with bad credit, be advised that such credit ratings usually attract very high loan interests and rates.

However, having no debts (loans, credits card etc.) does not necessarily mean you have good credit. Get a review of your current credit status before you apply for auto loan. Some countries have resources to provide free credit reports to their citizens, find out if this service is available in your country and utilize it to fix any error before applying for auto loan.

Car Loan
Car Loan

5. Avoid Long-Term Auto Loans

If you are considering signing for auto loan, consider loan duration and how this will impact on your financial obligations in the long run. Many car buyers are enticed by long-term loan for their low monthly payments but the truth is that you will end up repaying more in interests over the long run.

Also, consider that the car could depreciate dramatically in value over the years and the warranty is likely to be void within those years. The worst case scenario is that you can get stuck repaying an auto loan for a car that you longer need.

6. Compare Different Auto Loan Rates

When shopping around for auto loan, be diligent and compare different rates carefully. You may be drawn to the rates at the dealership because that is where you might start shopping first but avoid being constrained.

Consider auto loan rates in different perspective, for example, a fixed-rate loan. Likewise, two similar loans with a variation of 0.5% are very different in repayment.

7. Avoid Loan Penalties

Because personal financial standing are flexible, and they could change in future, look for an auto loan that is flexible too. Some auto loans might attract extra charges if you decide to increase repayments amount or when you decide to pay off the entire remaining amount at once.

Look for a lender that can allow extra payments without penalties. Be care and attentive to read through the loan agreement document, some penalties might not to be called by your familiar terms.

Things to Remember to Get a Car Loan
Things to Remember to Get a Car Loan

8. Avoid Conditional Financing

While some dealers may want you to own the car in a hurry, be patient and take all the time until you are sure the deal is finalized. Make sure all the requirements about financing such as interest rates, monthly payments, loan duration, down payment amount etc. are complete.

Some dealers may takes advantage of incomplete and conditional financing to adjust the loan to unfavorable terms.

9. Know How Much To Spend

It is a good consideration to track your budget and know how much you can spend on auto loan. Resource tools such as Microsoft Money can help you to build and track your budget while loan repayment calculators can give you an insight of your loan repayment amount.

It is recommended that you take your budget printouts with you to the dealership as a personal reminder to stick within budget during negotiations.

10. Read The Fine Print Before Signing

By the time you are almost done with auto loan and car dealership you may feel mentally worn out. This is where some dealers take advantage to rush, pressurize and confuse car buyers to sign auto loan documents.

Resist being intimidated and never sign documents without reading carefully or when you have second thoughts. Car buyers should always be in control of car buying process and not the sellers.


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