A car is a major purchase that many people eventually need to make. While it is possible for some who live in cities to get around without a car, in most areas it is necessary and cost-effective to have a car in order to travel to work, school, and other places you need to go.
Most people can’t afford to pay cash for a car and need to get a loan in order to make this major purchase. Borrowing money to buy a car is generally not difficult for people with steady full-time employment, but there are some steps to take in order to get the best possible loan you can. Here are some steps that show you how to get an auto loan.
1. Check your credit.
Before any major purchase that requires you to borrow money, it’s a good idea to know your credit score from the three main bureaus–Experian, Equifax, and TransUnion. Your credit score may affect whether your loan is approved, but will more likely impact the interest rate you will be offered for the loan.
A “good” credit score is typically above 700, but even those with credit scores as low as in the 500s can usually get an auto loan if their employment history shows full-time income for at least a year or two prior to applying for the loan. Those with lower credit scores can pay a much higher interest rate than they would if they had good credit, however, which can make the price of the car higher by thousands of dollars by the time all the interest is paid.
2. Prepare documentation.
The lender needs to see certain information in order to verify that you are qualified for an auto loan. Generally, the most recent six months of pay stubs from any job you want considered as part of your income will be required in order to show that you have worked steadily over that time period. Some lenders also want to see your previous year’s tax return to verify the income you are claiming to have.
If you are self-employed, you may need two to five years of tax returns as well as bank statements to verify your income. You will also need a utility bill or other document that shows proof of residence, proof of current car insurance if you already own a car, the title and registration to any car you intend to trade in, and identification along with your driver’s license.
Having these items means that if you strike a deal on a car, you may be able to drive it off the lot that day if your loan is approved. When you don’t have the documents you need, however, you may end up delaying your transaction until you gather everything and return to the dealership or seller.
3. Decide on a car (or several).
Choosing a car to buy is, of course, essential to the process, but you can end up paying more than you want to if you get your heart set on one particular car before you know the terms of that car’s sale, so it isn’t a bad idea to have a few possible cars picked out in case you hear something you don’t like from the salesman of your first choice car.
Having options will keep you calmer as you attempt to strike a deal and will remind you that there are other cars to pursue if this one doesn’t work out. Being willing to walk away from a less than wonderful deal on a car can sway the seller to give you the better price you are looking for, but either way, you will end up with more favorable terms on the car you do eventually end up buying.
New cars often cost a lot more than their used counterparts but should have fewer mechanical problems to deal with and come with a longer-term warranty that covers many, but not all, problems the car may have. A 2-year-old car is often the best value, with the worst of the depreciation out of the way but low enough mileage to keep running like new for a while after you buy it.
4. Research car prices.
It’s impossible to negotiate a fair price for a car if you don’t know what a fair price is. Doing your research on sites like Kelly Blue Book will help you be able to identify a good deal when you see one and keep you from taking a bad deal because you don’t know better. Your research should include a variety of characteristics including used and new, the effect of a geographical location, and cars with similar mileage and condition to the one(s) you are interested in.
5. Negotiate your terms.
Unless you are at the rare dealership that doesn’t negotiate prices, it’s part of the car-buying process to at least try to get a better deal than the posted price. Your research should help you know how low to go and whether the seller’s offer is fair. Besides the price, you can also negotiate perks like free oil changes and inspections or a better warranty to save more money down the road.
6. Plan for payoff.
Once you get the loan, you have to start making payments, which means making sure your budget allows for this new expense, as well as gas and maintenance. You may have to cut some expenses or find a way to earn extra income to make the car payment and other car-related expenses fit into your existing budget.
7. Take your time (think before signing).
Buying a car is a major commitment, so take your time and don’t rush into such a major purchase without thinking through all the terms, whether it’s a good deal, and whether you can really afford it. If anything about the deal doesn’t feel right to you, it’s worth taking more time and asking more questions until you feel better about it. And walking away is okay too; there are lots of cars out there for sale and you want to get the one that’s right for you.
8. Read the fine print.
There are lots of papers to sign when you buy a car, and it can be tempting to just sign everything without looking at what it all says. Some car salesmen are good at explaining each step of the process, but there are also dishonest ones who will try to cheat you or add in something you don’t need or want. It’s okay to take your time and read everything to make sure it’s on the up and up, and most contracts have a clause making it possible to cancel within the first few days if you change your mind, so you can always take all the papers home after you have signed them and read them more closely to make sure everything is as it seems.
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