If you choose to buy a used car and don’t have the funds to pay cash, financing is one of the options available. But you need to do your homework before setting foot onto a car lot. There are some preliminary tasks to take care of first, such as checking your credit report and knowing your credit score, and of course calculating your budget. Be careful as used car loans can often have higher interest rates, high down payments and shorter terms. But it is possible to get a great deal once you have all your ducks in a row. You can find your own financing or go through a dealership, just be sure you have some negotiating power if you go the latter route. .
How Good is Your Credit?
So your first task after selling or better yet, donating your previous vehicle for a tax-deductible car donation credit, is to check your credit report and seeing if everything’s correct, up-to-date and error free. To find your credit score range you can get a free credit score from Credit Karma. The first thing a lender will do is run a credit check, so be prepared.
What’s Your Budget?
Next step is to know what you can afford. How flexible is your budget and how much can you realistically pay each month? When qualifying you for a loan, lenders will tell you the maximum loan amount they can offer you. But the rule of thumb is to never exceed 10% of your monthly income. Once you have a number in mind you can use a car affordability calculator to help you determine how much you can spend and what kind of car you can afford. As well as the loan amount you need to calculate down payment, estimated interest and term.
Shop Around for Rates at Banks or Credit Unions
You can shop around for car loans at local and online banks or credit unions, but start with your own bank first as they may have a special deal for existing customers. Make sure to look at the term as well as the monthly payments. The longer the term, the higher the interest, and a short term means there’s higher monthly payments but less interest.
Negotiate a Deal
With your financing in hand you now have the power to negotiate and its time to go shopping for a car! Take your time looking at your options and asking lots of questions as you browse.
Dealership Financing
Once you see a vehicle you like, a good car salesman will of course try to get you to go with their financing and even claim they can offer you a better deal than the bank. But be careful as dealers often ‘mark-up’ the rate. If they do meet or even exceed the loan you’ve qualified for, don’t rush into any decisions, get the details in writing and go home and compare.
Personal Loan
You can also apply for a personal loan at your local bank and they usually don’t even ask what you’ll be using the money for. Just make sure you check the rates as they can sometimes be slightly higher.
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