How To Finance A Car

So you’re looking to finance a car, but need some helpful tips on how to do it? The most important aspect of financing a car is to first come up with a budget or price range. Whether you have already found a vehicle you are interested in, or you want to try to secure financing before looking, you need to have an idea of how much you want to finance.

Step One: Determine the finance amount. There are several finance calculators online, including KellyBlueBook.com and Edmunds.Com, that can tell you the how much you need to finance or can finance based on your desired monthly payment amount. Make sure to include pertinent information, such as taxes and other fees applicable in your state.

Step Two: Check your credit. After you know the amount you want to finance, you need to make sure you take a peak at your credit report. Many credit unions and financial firms will base either their decision to finance your loan off of your credit history. If you have delinquent accounts, bankruptcy, and other negative credit history, you may need to either wait until you can improve your credit (if you have time) or find a credit-worthy cosigner to apply with you for financing. You can view your credit report annually for free through Annualcreditreport.com. It is a government provided service and unlike some of the other ‘trial’ services, this report has no strings attached. But remember, you can only access your report once a year through this service.

If you need a co-signer  A co-signer can be a lifesaver, but they are putting their own credit and finances ‘on the line’ by signing themselves as a backup for payment in the event you can’t make your payments. In other words, if you can’t pay your bill one month, the financial firm will expect your co-signer to pick up the tab. This will reflect not only on your credit, but on the cosigners. So, if you end up needing a co-signer, it has to be someone that trusts you and knows that you can committ to the financial demands. Don’t be discouraged if you can’t find a co-signer right away.

Additionally, a co-signer can be valuable if your own credit is limited or has some minor blemishes, because they can help lower your APR. Depending on the vehicle, your APR can be as low as 0% interest (usually for a limited period of time). Typically, you want to find an APR for no more than 5% to keep your interest payments low. The higher your APR, the higher your payments will be, and the less you have to spend on your vehicle.

Step Three: Find a lender  After taking a look at your credit report and determining if your credit is ready to take on the financial burden of a vehicle, you need to find a lender. There are credit unions that work exclusively with certain companies or organizations. Often they will offer you promotional or exclusive offers if you are an employee or member. Also, many major banks and banking institutions offer vehicle loans. Keep in mind that each time you apply for a loan, your credit report will reflect what is called a ‘hard inquiry’ which can negatively impact your credit. So, do your homework. If you already bank through a company, contact them to see what their rates are and what they can offer. Do not give permission for your credit to be accessed until you are sure you are sure about the offer. There are also websites online that can help you compare current rates and loans. Autotrader.com or Edmunds.com is a good place to start.

Step Four: Apply for financing After you’ve found a lender that offers a good interest rate and appears to be within your credit means, your next step will be to apply for financing. You must give your personal information, such as your social security so they can run your credit and make sure you are within their parameters for acceptance. You will also need to provide an amount anticipated for the financing. If you have already found a vehicle you are interested in, you need to make sure your application includes all of the taxes and fees in the requested amonut. For example, if the vehicle’s sticker price is $10,000, do not request $10,000 for the loan. You can either use a calculator online to determine how much the fees will be, or you can contact the dealership or seller to determine how much the "out-the-door" price will be. If you are approved, congratulations! Depending upon the lender’s policy, they will either write you a check to give to the dealership or the seller, or they will ask you to bring in the vehicle’s documentation first before they can process payment.

If you are initially denied, don’t be discouraged! The most important thing to do is make sure you know why you were denied. Lenders will give you an explanation, either over the phone, through e-mail, or in writing. There can be several reasons why you would be denied, uncluding negative or limited credit history, income, or total debt-to-income ratio. Sometimes a co-signer can help your odds of being approved, but even a co-signer will not help if your income is too low for the amount you are requesting. The lender needs to be sure that you can make your payments.You can always try to lower the requested amount and see if that makes a difference.

Financing a car is a big ordeal. It takes time, patience, and research. Live within your means and be realistic about your payment amount. There can be a big difference between the sticker price and the price you’re paying out the door. Be sure to get both prices before making any decisions or applying for financing. Take advantage of promotions, but read the fine print. As long as you’re attentive and aware, you should be getting those keys and hitting the road in the car you want with the payments and interest rates you want. Happy shopping!