Automotive Loans: Applying for a Car Loan

by Amy Lillard

(1/2/2013) Buying a car can seem a little overwhelming — the huge number of options, the storied “hard-sell” negotiations most dealers seem to engage in, and actually finding the money to afford one.

It’s this last hurdle that can seem insurmountable for some people. But in truth, buying a car through obtaining financing, otherwise known as a car loan, can be simpler and smarter than you think.

Car loans are obtainable through a number of sources, including the dealership, a bank or credit union, home equity loans, or even through an online lender. Every car loan can differ by length, rates, down payments, and other terms. To get the most appropriate loan for you and your financial situation, follow a few key steps.

• Prep Your Credit. Your credit score is highly regarded as a measure of your financial health and your eligibility as a loan candidate. Take a look at your current score by checking the main credit bureaus. You will be charged a fee for your score. At the same time, obtain a free annual credit report to determine what goes into your score. If your score is less than ideal, correct errors or disputes in your report. In addition, you may need to spend some time rebuilding through on-time payments and reduced debt.

• Determine Your Budget. You may have an idea of what price would work. But taking a more comprehensive look at your monthly income and expenses, and how much you can conceivably add, gives you a true picture of what you can afford. Think not just in terms of the car price, but other expenses — gas, routine maintenance, car insurance, city stickers and other fees, and necessary repairs. Coming up with a number this way, and sticking to it when seeking out a car, can put you in a better position for a loan, and for sustaining the loan over time.

• Complete Application Paperwork. No matter where you seek financing, you’ll need to complete an application and provide supporting documentation of your employment and residence. This can include tax forms, paystubs, and more official documents.

• Shop Around. One of the simplest and smartest tactics for a loan that suits you and your finances is to compare loans from multiple sources. Applying for car loans as a few of the reputable, larger lending sites online, and even your local bank or credit union, can illustrate your full range of options and give you a choice.

A frequent contributor to ERATE® since 2006, Amy Lillard is a freelance writer specializing in turning complex information into useful tips and tricks for readers. For questions or topic suggestions, contact Amy at [email protected].

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