A Quick Guide To That First Car Loan
In many ways, there has never been a better time to obtain a car loan. Even if you do not have the most sterling credit, manufacturers are all but desperate to keep product flowing through their sales channels. This means that their dealer networks are being prodded to find buyers wherever and whenever they can. Yet many people are unaware of this opportunity or believe that they cannot qualify even though standards have loosened considerably.
Things Aren’t As Bad As You Think
Not only are there many people who do qualify but do not realize that they qualify, but there is also an even larger cadre of potential car buyers who are right on the cusp of qualifying under the currently loosened standards. For this latter group, a few small tweaks could get them into the contest, but they need to understand the rules of the loan qualification game to successfully play.
To begin with, it is important to understand that “no” does not always mean “not” but rather “no, we are not the ones who can give you a loan”. There are countless loan providers out there in the world, and they all make their livings by finding someone they can provide funding to. They have a direct incentive to say “yes” but the algorithmic gods must be propitiated first.
Know Your Own Situation Before You Shop
Start by having a look at your own credit report. This will provide you with two important bits of information. The first is your credit score– which is nothing more than a numerical assessment of whether you are a great credit risk, a good credit risk, or a poor credit risk. Don’t be discouraged if you come back in the poor credit risk category. This is better news than having no previous credit at all. Those are the people which the companies are most reluctant to loan to.
The second bit of information is a listing of your accounts and payment history. It is very important that you examine this list closely. Errors are more frequent than you might suppose, and most of those errors are usually going to be against you. You might have open credit lines that are not listed.
You might have been flagged for late payments even though you have always been on time. Your identity might have been jacked and someone has been running up bills in your name and not making any payments at all. So have a careful look and make sure that you correct any inaccuracies. Merely by doing so, you may elevate your score enough to warrant consideration for a loan, or it may bump you up enough to make you eligible for more favourable terms.
Finding Your Niche In The Credit Market
Once you have done everything in your power to ascertain and improve your existing credit score, the time finally comes to look at what sort of car loans might be on offer. Narrow down the many potential lenders to a list that only contains those who cater to a clientele with the same sort of credit parameters as you personally have.
Run a quick Internet search for something along the lines of “car loans for xxx credit score”. This should produce a surprisingly large number of entities that want to do business with you.
Saying No To Yes
It is important to be persistent, however. Just because someone says yes to your application, you should not automatically jump on it. There may be others who will also approve your application and may offer superior terms. Indeed, there are many shops which throw out very unfavourable offers as soon as they receive an application and count upon that person snapping it up without doing any comparison shopping at all. You must have a little confidence and faith in yourself. You must also exercise a little patience.
Avoid Unrealistic Expectations
Another important point to keep in mind is the need to adjust your horizons a little bit. It is unlikely that you will be able to get terms on a Rolls or Lamborghini on your first go around. You will need to consider something a little more practical and affordable. It is even true that different manufacturers will have different criteria although they offer the same sort of vehicle in the same price range as someone else.
Newer brands often must provide far more generous terms than do old established ones. It is often the only way in which they can break into a new market. New car companies spell opportunity for those on the lower end of the credit rating spectrum.
Avoiding Financial Suicide
Another important part of the equation lies in figuring out how much you can afford to pay monthly. This should not be calculated on a maxed-out level but as a reasonable examination of what you can afford without getting yourself into trouble if something goes wrong on any month. You need a cushion, in other words.
A loan payment also does not put petrol in the tank or provide for other costs such as registration and insurance payments. These need to be deducted from any sum you may assume you are capable of handling– unless, of course, you expect to use your new car as a planter in the back garden rather than as necessary transportation.
It should also be kept in mind that you may be able to get by with a more-affordable used vehicle rather than chasing a new one. New vehicles are notorious for losing value from the moment you drive them off the lot. If your need is for basic transportation rather than prestige, a good clean used vehicle will cost less both in absolute terms as well as in monthly payments.
More importantly, getting car loans of any sort, no matter how humble a vehicle it may be, paves the way for better terms on a nicer car once you have proven yourself on this entry-level car loan.
Set Yourself Up For Round Two
In truth, everybody who is just starting out with a car loan is likely to be offered less favourable terms than for those who have been through the process more than once. Keeping your initial level of pain to the minimum will get you on the ladder up to the car you really want much faster than if you really load yourself up on your first purchase.
Many people who go for the best they can qualify for often find themselves in a situation that is known as being “under water”. This means that their car depreciates faster than the monthly payments reduce the balance owed and leaves them trapped in an aging vehicle or forced to pay off their existing car loan by rolling it into their new loan package.
Be Patient And Wise
To summarize, you must know yourself first. Find out what your credit score is and explore ways to improve it. Figure out your true price range and stick to it. Shop around for loans and vehicles that will fit into these constraints without leaving you at risk of financial destruction if things go west. Remember that your goal of this first car loan is to get your foot in the door. A car loan of any sort will improve your credit score and allow you to afford a much nicer one at better terms the second time you shop for one.