Are you nervous about taking on debt for a new (or new-to-you) car? While it’s wise to avoid unnecessary debt when possible, it’s good to understand that there are several legitimate reasons why you might need to take on debt over your lifetime. Financing an unexpected bill, buying a home, or financing the purchase of a new vehicle are all respectable reasons to borrow money.
Fortunately, there are countless lenders willing to make that happen, and when you put in a little legwork before applying, you can increase your chances of approval for a fair loan at a rate you can afford. When it comes to buying a new or used car with the help of a loan, don’t let the idea of borrowing money intimidate you. Here are a few tips to follow to boost your chances of getting an auto loan approval when the time comes.
Auto Loan Approval Tip #1: Credit History Matters
Many car buyers think that because the vehicle they’re purchasing is used as collateral for an auto loan (meaning the lender can take the car back to offset losses if you fail to repay), there isn’t much need for a stellar financial track record. Unfortunately, that just isn’t true. In fact, all lenders review your credit before offering an approval for an auto loan because they need to ensure you’re a responsible borrower. That means you should know what’s in your credit history and how that impacts your credit score.
The first step anyone should take before financing a car purchase with an auto loan is to pull credit reports and check credit scores. The information included on your credit report is more in-depth than most realize, as it reveals how much debt you currently have, how much you owe to other creditors, how many times you have been late on payments, and how consistent you are with repaying what you owe. A credit report also reveals any not-so-great financial moves, like filing for bankruptcy, having a vehicle repossessed, or having a tax lien or court judgment against you. Lenders are far more likely to give you a more affordable auto loan when the negative marks on your credit report are few and far between.
Auto Loan Approval Tip #2: Correct Any Issues in Your Credit Report
If your credit has been an issue in the past, consider how you can improve it before walking into a dealership for a new vehicle. Remove any errors on your credit report to ensure it's an accurate reflection of who you are, financially speaking, and work to pay off balances that are past due or close to your credit limit. These steps not only have the potential to boost your credit score in a relatively short period of time, but they also improve your chances of getting an auto loan approval for the vehicle you want.
Auto Loan Approval Tip #3: Crunch Your Numbers
One of the most common mistakes car buyers make is getting so caught up in the excitement of having a new set of wheels that they miss the memo about budgeting. We all know it’s easy to be distracted by the fancy features and upgrade packages, but remember, these add up quickly. Before stepping foot on the dealership lot, be sure you crunch the numbers on how much you can afford for a new car payment each month. You can use this simple tool found right on many dealership websites to get an estimate.
Lenders may be willing to offer you a bit more than you expected, but it’s important to recognize you’re on the hook for that payment each and every month. Have a clear idea of what you can realistically pay based on the purchase price (including add-ons), your credit details, and any trade-in you may have.
You’re Now Ready to Apply for an Auto Loan!
Getting through the car loan approval process isn’t as scary as it seems, so long as you’ve done the work ahead of time. Take a close look at your credit history, and fix any issues that may limit your auto loan options before heading to the dealership—and don’t forget to determine what you can afford for your new vehicle on a monthly basis, bells and whistles included. Once you follow these simple but important tips for getting an auto loan approval, you’re ready to visit a dealership and apply for a loan with confidence. Congratulations and happy shopping!