Aside from a home mortgage, an automobile is the second largest purchase we will make in our lives. But unlike the solid brick and mortar foundation of a home, vehicles don’t normally last for decades on end. In addition, multiple purchases over time are the norm because we like the lure and the newness of vehicles. If you’re in the market for an auto loan, here are some helpful takeaways to get approved.
Set Yourself Up For Success
Before you even enter a car showroom, make the effort to check your credit. Examine a copy of your report from each of the three major credit agencies: Equifax, Experian and Transunion. Reviewing each report will give you the opportunity to find any discrepancies and correct them. You want your scores to be as accurate as possible.
Do Your Homework to Find the Best Rates
Many buyers and borrowers take the easy route and go with the dealer for financing. But do yourself a favor by checking on other sources of financing like your banking institution or credit union. These places will offer excellent rates and may have additional perks for you as a member. Online lenders also offer competitive financing, so make sure you don’t ignore what they may have to offer.
Borrow the Minimum
Your heart may desire that Porsche Cayenne, but it may not be in the best interest of your wallet. You will have more success securing an auto loan when you have realistic expectations of your budget. Keep in mind that if you must borrow money to buy a car, then your purchase shouldn’t be very expensive. Borrowing too much could leave you at a disadvantage if you have an unforeseen hardship down the line. In addition, borrowing the minimum makes you a more attractive liability to a lending institution, because it will help you maintain a manageable debt-to-income ratio.
Choose the Shortest Loan Possible
Vehicles depreciate quickly. Therefore, it would never make sense to secure a loan that stretches out more than five years because you will end up paying more than the car is worth. Choosing a shorter-term loan means you will not end up paying an arm and a leg in interest over the life of the loan. If you enjoy having a new ride every few years, then leasing would be an attractive option. Leasing requires a much lower down payment than buying and it also offers low monthly payments.
Getting approved for an auto loan is not rocket science. However, you still need to do some background research to make sure you enter this process intelligently. The last thing you want is for your dream car experience to turn into a financial nightmare in the long run.