Most people need to take out an
auto loan when they want to purchase a new or used car.
But qualifying for an auto loan is not always easy.
Credit mistakes, late bill payments, and low income
levels can sometimes ruin a person's chances for a loan.
When this happens, people often ask why they were denied
and want to know how to qualify for a loan through another
lender. But there are ways that you can qualify for
an auto loan even if your credit is not the greatest.
One of the best ways to qualify
for a loan is to plan in advance. Stop making purchases
with credit cards and pay off remaining balances before
applying for a loan. This will help boost your credit
rating and show lenders that you are responsible with
your money. Making purchases on your credit cards before
the loan has been processed may hurt your chances of
receiving the loan. Try to hold off using credit cards
until after you bring the car home. Even if you have
missed a payment or two in the past, if you have consistently
paid your bills for the past year or so, you should
qualify for a car loan.
The type of car you want to buy
will matter to lenders. Try to find cars that are within
your price range. When budgeting for your new car, include
monthly insurance payments. This will give you a good
idea of how much you can spend without using up all
of your available income. Many lenders will not grant
loans to those who will use 60% or more of their monthly
income on the car loan, living expenses, and other bills.
Be sure to stay within your range and try to save a
little extra money to use as a down payment. When lenders
see that you are willing to put up your own money, they
will feel more at ease about granting you a loan.
After you have found a car within
your price range, and saved up money to use as a down
payment, you will be ready to find a lender. There are
many options for you to choose from including banks,
credit unions, auto finance departments, and online
lenders. You should start with your local bank because
they will already know about your financial situation
and more apt to working with customers that bank with
them. Banks usually offer the lowest interest rates
as well. If you belong to a credit union, then you should
apply for a loan through them as credit unions can also
offer low interest rates.
If you have already tried a bank,
but have had little success, you can try the finance
department at the dealership where you want to buy the
car. They usually work with many lending institutions
and will be able to match you with a lender that will
grant you a loan. Keep in mind that you may have to
pay a higher interest rate when going through the finance
department, but it may be worth it depending on how
much you need a car.
If you do not want to use the finance
department at the dealership, shop around online. You
will be surprised to learn that there are many lenders
online that want your business. They are competing with
other online lenders and traditional lenders as well.
This means that they will be able to offer you a better
deal even if your credit isn't that good. Make sure
that you research the lender before you contact them
to find out if they are legitimate or not. You should
also read all contracts before signing them in case
there are hidden fees you were not told about.
Depending on your credit history,
the interest rate you will be offered may be higher
than you expected. If you can put down a larger down
payment or pay off the car sooner than your original
loan terms, this rate will go down. You should weigh
all of your options when it comes to loan terms. If
you cannot pay off the car in two or three years, do
not risk it. Take out a loan for five or seven years
instead. This will cost you more in interest, but at
least you will be able to make payments each month.
Qualifying for an auto loan may
require you to research your options and apply for several
loans before being accepted. Planning ahead of time
by getting your finances in order and finding a car
that is in your price range will increase your chances.
If you are buying a car for the first time and have
little or no credit, you may also run into problems
along the way. Being patient and trying different lenders
will pay off in the end.
Credit School - Auto Loan