If you are in the market to buy a new car, it says some things about you. First, it says that you want to be able to drive your new car for a long time. Second, it shows practicality in the face of a market where a new car every two years is becoming the norm. Finally, it says that you will need auto financing. Buying a car outright in today's market is no longer feasible for more consumers. Therefore, you'll need an auto loan. Before you sign on that dotted line, you'll need to understand how these loans work. You'll need to know the processes behind auto financing to get the best loan for your needs.
Credit History – Your credit history is one of the first things that a lender will inspect. Your credit history contains a record of all the loans you've taken out, late payments, delinquent accounts, creditors and much more. In short, your credit history is a summary of your purchasing past. This bears significantly on your buying future, and dictates just how much buying power you have. Your credit history has a great deal of influence over the interest rate that you will be given.
The best way to avoid pitfalls in this area is to know your own credit history. Get your free credit report and investigate it thoroughly before approaching any lender. In addition to the dings that you may have put there, it is not unheard of for credit bureaus to make mistakes on a credit report. If you find any errors, report them immediately and have them removed; This will raise your credit score and help you get a better interest rate.
Credit Score – While you will not find your credit score on your credit report (you have to pay for it), this is another huge factor in the loan. In theory, your credit score is a numerical summary of your credit history and credit worthiness. This number has an aggressive impact on your auto loan. The higher (better) your score, the lower interest rate you will be given. However, if your credit score is under 620 (varies with lender), you will find yourself in the subprime market. That means your interest rate just shot through the roof.
Your Trade In – Trading in an old car is standard operating procedure for many consumers. However, you might consider selling it outright and adding that cash to your down payment. Most of the time, you can get a better price for your vehicle if you sell it outright than if you trade it in with a dealership. Remember, dealers do not give Blue Book value for trade-ins; they give the lowest price, based on what the car is worth to them.
Your Down Payment – One of the largest determining factors in your monthly payments is the amount of money you use as a down payment. This money goes directly towards reducing the price of the car, so the more money you can put down, the lower your monthly payments will be.