Do you want to know how to qualify for an auto loan? Here are some important aspects you need to consider. Having high credit can help; lenders often look at other factors in deciding whether or not to approve your application. Consider these eight factors if you want to get approved for a car loan.
1. Ensure you have a good credit score.
You’ll need a good credit score to get approval for a car loan with fair circumstances. A FICO score between 670 to 739 is considered a good score, but a higher score is even better. Auto lenders widely use the FICO auto score and FICO 8 models to determine the credit score. However, lenders may have their own criteria as well to determine what makes a decent loan. You have a high chance of getting approved if your credit score is high.
Moreover, keep in mind that lenders may opt to approve you for a car loan even if your credit score isn’t great. However, you may be charged a higher interest rate or be required to have a cosigner with good credit.
2. You must have a source of income.
Auto lenders value a steady income because it increases the possibility that you will make your monthly payments. You may be required to submit one or more documents, depending on the lender and your employment position.
To minimize extending the process, contact the lender early on to discuss your situation and know what documentation you’ll need.
3. You should be able to prove your identity and where you live.
You may not need to submit this information if you’re receiving a loan through your usual bank or credit union. However, if you’re working with a lender for the first time, you may be required to produce a government-issued photo ID as well as proof of residency.
That’s mostly because the lenders want to know where your car will be parked. In case if you don’t make the payment, then the vehicle must be repossessed.
4. Try getting preapproved.
A lender can use the car loan preapproval approach to do a soft credit check and evaluate your credit report to see how likely you will be accepted. You know not to waste your time applying if a lender does not preapprove you.
Preapproval won’t hurt your credit score because it’s a soft credit check. When you go through the processes with several lenders, you’ll be able to compare different lenders to decide which one offers the best loan conditions.
5. Make a Trade-in or deposit.
Making a trade-in or down payment in your current car can help you get accepted for a loan with a lower interest rate. Learn about each option now:
Any car with a value that you offer a dealer in exchange for credit against the sale price of the car you’re buying is referred to as a trade-in. If you buy a $15,000 car and trade in your current car for $8,000, you’ll only need to borrow $7,000 on the new car; if you don’t have a debt on the old one to pay off.
- Down payment
The cash you give to a seller or dealer to cover a part of the vehicle’s purchase price is your down payment. Borrowers that make a down payment are seen more favorably by lenders since they have a stake in the game and are less likely to default.
6. Learn How Dealer Financing Works
It’s important to understand how a dealer manages the financing process if you’re working with them. Many dealers contact several lenders at the same time to get the quotations that they can share with you. Request to see all quotations rather than just the one the dealer suggests.
Sometimes dealers also might offer borrowers additional financing plans which the car’s manufacturer sponsors. You must have excellent credit and agree to specified criteria to qualify for these packages.
7. How to Get a Car Loan With Bad Credit
To get a car loan, you don’t need strong credit. In fact, several auto lenders specialize in working with bad credit borrowers.
Take your time looking for lenders who will preapprove you and provide you reasonable conditions if you have bad credit. Also, a trade-in value or a good down payment will assist you in lowering the amount you need to borrow.
Lastly, look for a cosigner with excellent credit who can assist you in getting a better auto loan.
8. Before you apply, work on improving your credit.
The higher your credit, the more likely you will be approved for a car loan with generous conditions. Check your credit report for any inconsistencies that you can dispute with the credit bureaus. Also, it takes time to improve your credit, but it’s worth it if it saves you money.