Whether one is a first time buyer or a seasoned applicant, the loan and approval process can be equally as confusing. So, it is logical to have a quick look at some of the main factors that need to be considered when applying for a vehicular loan.
The most important area to consider is one's current financial situation. Simply stated, only those on a predictable and flexible budget should considering applying for any type of car loan. An easy way to help clarify the costs of a loan are to use what is known as a loan calculator. Such a calculator can be found online and will help determine the amount of money that will need to be paid monthly and will include the sum of interest rates that apply.
Credit history is another important facet of this process, as seen in the articles previously mentioned. Poor financial history may make it impossible to be approved for certain loans while there are other instances where the annual interest rates (APR) will be prohibitively high.
Compare multiple providers. Interest rates may vary from provider to provider. It is wise to contrast at least five different companies before deciding on which one may offer the most agreeable financial platform. Most loan companies will be happy to offer a free online or in-house quote in a matter of minutes.
Consider refinancing as an option. For those who have existing loans, it may be better to refinance these instruments. This should be done if the interest paid per year has dropped significantly or a credit score has improved since the initial loan's approval.
To review, some of the basic aspects that should be addressed before applying for a loan or changing the status of a current loan are:
- Carefully plan a realistic budget.
- Take into careful account credit history.
- Examine the interest rate offered from multiple providers.
- Question whether it may be better to refinance a current loan.
Now that we have briefly perused some of the main tips when determining which loan solution may prove the most advantageous, let us look at some of the most common pitfalls to be avoided.
It is first essential to avoid dealing with providers that have a mottled track record. Look for testimonials or search for online reviews to help discover whether or not the company is considered to be in good standing.
Never apply for a loan that cannot be paid into the foreseeable future. Not only should payments be feasible but it is wise to also have a financial "buffer" set aside each month so that if a situation changes, the payment amount can still be covered.
Only choose companies that offer a transparent payment plan. Not only should this include making an interest rate absolutely clear, but the provider needs to clearly quantify any other fees or surcharges that may be incurred during the loan repayment period. It is specifically advantageous to ask what the late penalty charges may be; some can be harsh and damaging to an already shaky credit situation.
Carefully research the value of the car before applying for a loan. Many dealers will price a vehicle much higher than the manufacturer's suggested retail price. This is due to the fact that they expect to encounter negotiations during the sales process. By determining the current market value for the car, a loan can be taken that will represent a realistic figure rather than one that is overpriced.
Summarily, some of the pitfalls that should be addressed during the auto financing process include:
- Only choose providers with a proven and reliable track record.
- Never apply for a loan that may not be repaid under unforeseen circumstances.
- Search for transparent and clear payment plans.
- Research the vehicle's value before committing to a loan.