5 Steps to Take Before Shopping for a Auto Loan

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Planning ahead to shop for your loan can save money, time, and stress. Making decisions early gives you time to think about your alternatives, and helps you make the right choices.

 1. Budget Wisely

If you have a budget, you have a better chance of ending up with a loan you can afford and are able to pay on time. A budget also helps you think about ongoing costs such as vehicle maintenance and insurance. You want to be sure that there is room in your budget for both the loan and the other costs of ownership, such as:

  • Additional costs at the time of purchase (taxes, title fees, and dealer fees)
  • Ongoing costs throughout the time you own the vehicle (insurance, gas, annual registration fees, maintenance, and repairs).

If you are having trouble coming up with a budget that works for you, think about ways that you can reduce the cost of your auto loan, such as:

  • Saving for a larger down payment
  • Buying a less expensive vehicle
  • Getting fewer add-ons, features, or options

2. Check your credit report before applying

The information in your credit report determines your credit scores. Your credit score(s) plays a large part in determining what kind of auto loan you can get, and how much interest you will pay for the loan. You can get a free copy of your credit report annually from each of the three nationwide credit reporting agencies Check your credit report for errors and dispute any errors that you may find. 

3. Decide if you need a co-signer

A co-signer is a person – such as a parent, family member, or friend – who is contractually obligated to pay back the loan just as you are. If your credit history is limited or needs improvement, and you have a low credit score (or no credit score), a co-signer with good or excellent credit could significantly lower your interest rate. That is because the lender will rely on the co-signer's credit history and score in deciding to make the loan.

If you are considering having a co-signer, you and the potential co-signer should think carefully about this decision. If you do not repay your loan, you and your co-signer will be responsible for repayment. The co-signer is responsible for the loan even though he or she has no right to possession of the vehicle. In addition, any late payments made on the loan would affect both your credit record and score(s) and your co-signer's credit record and score(s). Federal law generally prohibits a lender from requiring you to have a co-signer if you apply for a loan individually and you qualify under the lender's standards for creditworthiness for the loan.

4. If trading in a vehicle, research its approximate value

5. Think about optional add-ons ahead of time

It's a good idea to think about add-ons ahead of time, so that you are prepared and know what you want on the day you finance your vehicle. These products and services are optional and negotiable. If you buy them it can increase the total cost of your loan. Shopping around for any add-ons that you decide you want can save you money.

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Thursday, 26 May 2022
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