It’s Time to Buy a Car
If you need a new vehicle, you may consider taking out a loan to purchase it. Traditional banks and online lenders provide these auto loans for those who qualify. So before you apply to get a loan, there are a few things that you’ll want to keep in mind.
What is Your Credit Score?
When you go to get a car loan, your credit score will highly determine if you’re approved and your rates. Those with excellent credit scores typically receive the lowest interest rates. Conversely, those with poor credit scores may be denied straight out, or they will be offered high-interest rates to cover the added risk to the lender.
It’s essential to keep your credit score in mind before applying for a vehicle loan. You’ll want to do everything possible to ensure that it’s as high as you can get it. For example, if you’ve changed up some of your credit cards, it’s a good idea to pay them off first. This will reduce your credit utilization and increase your credit score.
What is Your Budget?
A vehicle is a large financial investment for most people. Affording the purchase outright is likely out of your financial reach. Fortunately, an auto loan can be a great option when you need to upgrade your car. However, you’ll want to take a look at your budget first. It’s crucial to ensure that you can commit some of your income each month to pay for your new vehicle.
Most auto loans will last between three and five years. That’s a long commitment, so you want to ensure that it’s possible for your budget. You can utilize online auto loan calculators to determine what monthly payments a particular vehicle price will run you.
It’s best to set a definitive monthly payment range and look for a vehicle that fits within that price range. You never want to start looking at vehicles and hope they fit your budget. This will often lead to taking out an auto loan that is more than you can comfortably afford.
Consider a Refinance
If you’re struggling to keep up with your high vehicle payments, you may think that trading your car in on a cheaper option is the best route to take. In reality, you can simply opt for an auto loan refinance. According to Lantern by SoFi, “auto loan refinancing is taking out a new loan to pay off your existing car loan.”
Most people do this with the intent of taking out the new loan for a longer-term period to reduce their monthly payments. This can be a great option to help with your budgeting without selling your existing vehicle. Auto loan refinances are also a great option when you need cash and have significant equity built up in your vehicle.
Taking out a loan to buy a car is a big decision. So it’s best to ensure that you fall into one of the situations above before you do so.