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Applying for an Auto Loan: Where to Start

Couple driving into the sunset

So, you’re ready to buy a car? If you’re a first-time car buyer, the process can feel overwhelming and you may not know where to start. Here’s a rundown of everything you need to know to put yourself in the driver’s seat and on the road to auto ownership.

Preparing to Apply for an Auto Loan

Whether purchasing new or used, unless you are paying in cash you will need to secure an auto loan to buy a car. While many consumers focus their attention on the type of vehicle they’re interested in, it’s also crucial to research financing options.

To begin this process, you’ll need to identify the following factors.

Budget

To determine how much you can afford to spend on a car, you’ll need to create a budget. Consider the monthly loan payment amount, price of gas, maintenance costs, and insurance fees.

Many experts advise not spending more than 15% of your monthly income on your total auto expenses. So, let’s say your monthly income is $4,000. In this case, your auto expenses would ideally stay below $600 per month.

Calculating factors such as the price of gas, maintenance, and auto insurance Off Site Link can be complicated as they usually depend on your geographic location, vehicle type, driving history, and economic conditions. It’s important to do the legwork to determine these prices and fees so that you’re not tied to a loan you can’t afford. Using the government’s fuel economy website Off Site Link can be helpful in calculating some of these costs to determine which car and budget is right for you.

Credit Score

Knowing and understanding your credit score is just as important for an auto loan as it is for a home loan. This three-digit number that represents your creditworthiness and your ability to repay debts is most commonly determined through the FICO system using a 300-850 range.

Having a good credit score increases your chances of more favorable loan terms, including a lower interest rate.

In addition to a budget and credit score, you’ll need to have proof of the following: Identity, income, credit history, insurance, residence, and vehicle registration.

Auto Loan Shopping

Shopping around for an auto loan is another important step in becoming a car owner. To best compare your options, it’s a good idea to do your research on multiple lenders and limit the applications made to just the ones you choose. Excessive inquiries on your credit can have negative impacts on your score for a period of time.

Instead of going directly through car dealerships, which tend to have higher rates, contact your current bank, as well as other local and online banks and credit unions, to determine the best option for you.

As you comparison shop, take into consideration the interest rates, loan terms, loan fees, and closing costs for each financial institution. Additionally, identify ways to save on loan costs that could potentially be available to you. This could include automatic payment withdrawals, shortening loan terms, consolidating debts, or becoming a new customer of that financial institution. Be sure to check out all special discounts and keep a watch on promotional rates.

Getting Pre-Approved

Obtaining pre-approval can give you a jumpstart on securing a good deal on your car loan. During the pre-approval process, you will actually apply for a loan and the financial institution will formally agree to a loan amount, interest rate, and repayment terms.

Getting pre-approved is also a great way to plan ahead in terms of budgeting. You’ll see in no uncertain terms what your loan can afford you in a new automobile. Additionally, pre-approval can be an effective tool for negotiating price with the dealership. Keep in mind that being pre-approved does not commit you to moving forward with a loan from that financial institution.

Sunrise Banks Provides the Roadmap You Need

At Sunrise Banks, we will help you navigate the path to automobile ownership, while smoothing out any bumps in the road along your way. We personally offer auto loans with fixed, competitive rates, a variety of financing options, and the ability to automatically pay your loan directly from any checking or savings account. To find out more about Sunrise’s auto loans and easy online application platform, visit our website or give us a call at 651-265-5600.

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