Car Loans: Three Things You Should Do Before Applying
What a relief? Buying a car can be stressful. But, you just found a good deal on your dream car. And now you need to get a car loan to purchase it. So what should you do next so that process goes smoothly?
Find out these three important things.
What’s Your Debt-to-Income Ratio and Credit Score?
Other than your income, lenders will want to know your debt-to-income ratio and credit score. So you need to find out this information before you seek a loan. Your debt-to-income ratio is the amount of installment payments you have each month in relation to your monthly income. For instance, if you make $4000 a month and spend $1000 a month for housing and credit card payments, your ratio would be 25 percent.
Credit scores range from the low 300s to the mid-800s. 720 and above is considered excellent. 680 to 719 is good. 620 to 679 is average. 580 to 619 is poor. 500 to 579 is bad. Most of the credit bureaus allow you to purchase their report and score, as well as the other two reports and scores. The three reporting companies are Equifax, TransUnion and Experian. Go to their websites and you should be able to access all three of your reports and scores for around $40. You can also get a free report once a year from all three bureaus at www.annualcreditreport.com.
How much cash do you have as a down payment?
Two factors affect the amount you pay upfront on a car purchase. The first is the amount of the loan you qualify for and the second is the amount you can or want to put down. Now if you want to buy a car for $20,000 but only qualify for a loan of $15,000, you will have to pay $5,000 upfront or find another car that only costs $15,000. If you qualify for more than what the car costs, you can choose what amount if any you will pay upfront. For example, you buy a $17,000 car and qualify for a $20,000 dollar loan based on your income, debt ratio and credit score. You would not be required to pay any cash down, but you may decide to in order decrease the size of the auto loan.
How Long Do You Need or Want to Pay Off the Car Loan?
Here’s the way auto loans work. If you want the lowest interest rate possible, you should choose the shortest term available. If you want the longest term possible, you will have to pay a higher interest rate. Which means over the life of the loan you will end up spending more for the car. Even so, most car buyers are opting for the longer terms because they want a better car or an overall lower monthly payment. So you need to decide upfront if you want the lowest monthly payment possible or if you prefer to pay the least total dollar amount during the life of the loan.
Now that you understand these three key things, you are ready to apply for you car loan. You can apply now by filling out this easy and secure application.