Financing a car is one way to purchase a new automobile. Some people pay cash for cars and avoid a dealer's finance department. But if you don't have this type of cash on hand, consider financing the purchase. There are steps to financing a car that can ensure the best interest rate and auto loan terms.
Improve Credit
Work on increasing your credit score before beginning the car buying process. Auto loan lenders work with people of all credit groups. But if you are interested in a low-rate auto loan and the best auto terms, improving a low credit score can help. A credit score of 700 or higher can qualify you for favorable auto loan terms. Ways to improve a score include paying your bills on time and, if you have consumer debt like credit cards, start paying it off.
Provide Income Proof
The majority of auto loan lenders will need to see proof of income or employment before approving your auto loan application. If you can't afford the monthly payment on an auto loan, finance companies will repossess the automobile but could still lose money on the deal. Bring a copy of your most recent income statements or tax return when visiting auto dealerships. If self-employed, provide tax returns for the past two years.
Shop Around
Financing a car and getting the best rate and terms will involve shopping around and contacting different auto loan lenders. You might look into dealership finance options. But rather than accept the first auto loan that you're offered, be patient and consider other options. Visit your bank or credit union and get an auto loan quote. Compare quotes and take note of the interest rate, the loan term and the monthly payment. Pick the auto loan with the most affordable interest rate.
Considerations
Financing a car doesn't always necessitate making a down payment or having a co-signer. However, a down payment helps secure a lower interest rate on the auto loan, and if you have no credit history or a poor credit history, a co-signer can help you get approved for the loan. Co-signers need an established credit history and a good credit score to compensate for your low score. If supplying a down payment, aim for at least 10 percent of the sale price.
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