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Things to Know Before Taking on an Automobile Loan

Things to Know Before Taking on an Automobile Loan

According to the experts, when you enter into an auto loan agreement with a bank or any other financial institution for that matter, you should:

  • First determine how much you can really afford as a loan
  • Take a look at your financial situation and
  • Know about all your resources to make sure you have enough money to cover the monthly bills as well as your living expenses.

Therefore, it is essential to use the ‘make a budget’ worksheet to know how much you can afford before you buy or lease a car. This budget, which will indicate your sources of income and all areas of your monthly expenses will enable you to know whether or not you should take on a new monthly payment. Ideally, you should finance or lease a car only when you can afford to take on such a new payment. Period!

Trading in a Car

You will be able to lower down your leasing or financing cost significantly and save a lot of money for a down payment by trading in a car. But in this matter, you should first know whether or not you have a trade-in in the first place.

In a few instances, your trade-in will take care of the down payment required for your new car. However, if you still owe money on your car, this option of trading it in may not be of much help. This is because, when you owe more than the worth of the car, it will set off negative equity. This will have a serious impact on the lease agreement or financing of your new car.

Therefore, make sure that you:

  • Check auto trade-ins and negative equity thoroughly before you go ahead with your auto loan and
  • Consider paying down the loan obligation before you lease or buy another car.

This will not enable the negative equity to set off if you do use your car for a trade-in which will invariable prolong the length of your lease or financing agreement apart from the amount of the monthly payment you have to make.

Check Your Credit Report

It is a good idea to get a copy of your credit report and check it as well. Your credit report and credit score will significantly affect your borrowing ability when you are considering leasing or financing a car from a bank or any other lending sources.

You should tally it with the eligibility criteria of the lender which may vary from one to the other. Therefore, spend some time to surf sites like Liberty Lending or any other to be well versed with the eligibility requirements.

You can get a free copy of your credit report from each of the three reporting agencies nationwide every 12 months such as:

  • Equifax Credit Information
  • Experian
  • TransUnion Corporation.

The process to follow to order your credit report is pretty simple wherein all you have to do is:

  • Visit www.AnnualCreditReport.com
  • Call 1-877-322-8228 or
  • Fill up the Annual Credit Report Request form and send it to the Annual Credit Report Request Service.

If you have already gotten your free copy for this year but still need the latest copy of your credit report, you can buy it for a small fee from any of the three credit reporting agencies. In addition to that, you can also find a free copy of your credit score on your credit statements. Normally, you will get your credit report or credit score only after you apply for a financing or a lease.

Know About the Co-Signer for your automobile loan

In case you do not have any solid credit,or do not have any credit history at all, your creditor may ask you to get hold of a co-signer on your lease agreement or finance contract.

  • The co-signer will typically assume equal accountability for your lease contract.
  • The payment history of the account will appear on the credit report of the co-signer as
    well as yours.

This means that in case of any late payments, it will harm both of the credits. Therefore, if you cannot make a payment that you owe, the responsibility will fall on the co-signor to make the necessary payments.

Therefore, you will need to be very clear about the terms of the loans and the responsibilities towards it that you both will have to follow. It is paramount to make sure that both you and the co-signer can afford to take on the monthly payments.

Know the Financing Options

Lastly, you should know about the different financing options that you can choose from when it comes to auto lending. Ideally, there are two financing options: direct lending and dealership financing.

Direct Lending:

This is the process in which you borrow the money directly from a bank, a credit union or a finance company. When you are provided with the loan, you will enter into an agreement to repay the amount loaned plus a finance chargeover a specific period of time. This loan is then used to pay for the car when you are ready to buy it from a dealer. If you chose this option to finance your car you should make sure that:

    • Compare the shop by shopping around and asking several lenders to know about their credit terms before you even decide to buy a particular car
    • Get your credit terms in advance by getting a preapproval for your financing.

This will help you to know about the Annual Percentage Rate, the maximum amount you can avail and the length. When you use this info when you meet the dealer it will surely improve your capability to negotiate.

Dealership Financing

You may also apply for financing your car through the dealership. In this process, you enter into a contract with the specific dealer where you buy a car and pay the principal and interest to the dealer. The dealer actually sells the contract to a finance company, or a bank or a credit union that provides the services and collects the payments.Dealership financing is convenient as you get extended service hours and special programs.

Therefore, shop well!

By Silvia Watson @ DriveTribe

Get Auto Inspection Service

By:
autotech
October 12, 2019

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