It might be your dream car, a family car, or just a car that drives, but buying a car is a big deal. Not only does it give you the freedom to go where you want when you want, it helps define you as a responsible adult. Paying for your new car is also a big deal. Unless you’re one of the few who can pay cash for your car, you’re going to need auto loan financing.
There are several ways to go about getting an auto loan. You can come in with your own financing from a bank, or you can often get financing through the dealership. Either way, there are a few things to take into consideration before you start talking dollars and cents.
How much can you afford?
You need to figure out how much you can afford to pay for a car payment. And you need to do it before you start test driving and falling in love with a car that ends up putting you in dire financial straits. To do this accurately, you need to set up a budget if you don’t have one already. Find out how much “extra�? money you have each month.
To determine your budget, make a list of all of your regular bills and expenses (rent, electricity, phone, etc.) and add them up. Then estimate how much you spend each month on things like food, entertainment, etc., and add these to your bill total. That’s your monthly expense total. Now subtract this from your monthly income, and what’s left over is what you have to work with.
Now be sure to remember that buying a car isn’t just the monthly payment – it’s also a down payment, licensing, registering, taxes and insurance. So take all of this into consideration when you look at what money you have to buy a car with. You can call your local Department of Motor Vehicles (DMV) and ask about the initial fees, etc. associated with buying a car in your state to get an idea of what to expect.
An auto loan calculator can also help you figure out how much car you can get for your money. If you’re going to be getting your loan from a particular bank, many of them have their own car loan calculators that are already set with their annual percentage rates (APR).
What’s your credit rating?
A big factor in getting the best car loan rates is your credit rating. With a poor credit rating, you’re APR will be higher, meaning you’re paying more a month in interest. To get good auto loan rates, you need to have a good credit score, usually between 600 and 850. If your score is below 500, you’ll be subject to higher rates.
A good way to check your own credit score before the bank or dealership sees it is to use a free credit score service. Two such services are CreditReport.com and FreeCreditReport.com. This also allows you to see if there are mistakes in your credit report. If so, you need to dispute them and have them cleared before a bank or dealer looks at it to determine a loan amount and APR.
If you have bad credit, auto loans can be hard to get. Many banks and dealerships are willing to work with people who have had a few blemishes on their credit reports. If you’re not one of those people, there are other options. While you won’t be able to get the lowest car loan rates possible, you can still get a low interest car loan rate with bad credit. Here are a few web sites that can help:
Getting an auto loan
You know how much you can spend, and you know what to expect when the bank or dealer takes a look at your credit report. All that’s left is shopping around for who can give you the best car loan rate.
It’s important to look at a few banks and check with the dealership about auto loan rates before you sign any papers. Before you shop around, you need to pick out a car so you know the approximate amount of money you need to borrow. From there, look around to see who can give you the best car loan rates.
And if you’ve done your homework – looked into your budget, done what you can to fix your credit score – then you’ll land a low car loan interest rate that’ll fit perfectly into your budget. It won’t be long until you’re grabbing those keys and stepping into your new car for the first time.
