Introduction
Most cars depreciate. This means that when you have to borrow to purchase your car, it can impact your finances a great deal. That is why experts recommend that you do extensive research and assess all the options at your disposal. This way, you can avoid the stress associated with seeking car finance and even save money while at it.
It’s not just enough to research about the car but also the provider of the car loan. Remember that one mistake is sure to leave you in heaps of debt and no one wants that. Here are our tips for securing finance for purchasing a secondhand car.
Check Your Credit
Most lending companies have information about customers and they can easily check your credit rating. They use your credit rating as a yardstick for determining the level of your riskiness as a borrower.
They can tell, based on the reports, that you pay loans on time or default. That is why before you seek a car loan, you should first check your credit rating and find out if you have been blacklisted or not.
Check your credit report keenly to discover if it has any errors. Confirm that there are no pending debts that were not updated. These errors can affect your credit rating negatively.
Know Your Credit Score
There is a close relationship between your credit rating and your credit report. But in some cases, the credit score is not indicated on the credit report. This may necessitate visiting a separate agency to know what your credit score is.
Your credit score is affected by several factors, and some of them include: how frequently you delay before paying your loan, the amount of money owed to your debtors, and the number of loans you are servicing at the moment.
Checking for errors in your credit report is just as important as clearing your pending debts. Also, having a good credit score ensures puts you in a good position to get better car finance rates.
Shop for and Compare Car Loans
In the same way that you put a lot of effort when looking for the best car deals, this should also be replicated when it comes to finding car loans. Avoid settling for the car finance options being offered by the dealership only. Instead, shop around to compare rates.
Visit a few local banks, direct lenders, and other car finance service providers to find the best rates. Ask about their rates and find out if they have hidden charges or fees.
Write notes about each lender visited and compare their rates and terms of service. You will find that there is a significant difference in their quotations and terms of service. Before you decide on the car loan provider, take your time and think about each offer.
Get Pre-Approved
Having done your research, it is now the right time to approach your lender and get pre-approved. This simply means the lender providing the car finance under the agreed-upon terms and conditions even without the vehicle.
But the lender will avail the money only when you have decided on the car that you want to buy. Armed with a pre-approval loan, it’s easier to know the interest of the loan, its total cost, monthly installments, and the repayment length. Also, it enables you to move things in your budget and fit in the loan.
Pay a Good Amount of Down Payment
The down payment can be a certain percentage of the price of the car and has two main advantages.
The first one is that, when you pay a large amount of down payment, it reduces the amount of money you have to borrow, and hence the interest rates. The second advantage is that it reduces the car loan risk to the lender.
While raising money for the deposit might pose a challenge, in the long run, it is you that will benefit in terms of lower interest rates.
Borrow Very Little
If you manage to raise a good amount of deposit for your car, it will greatly lower the loan you take out. The other benefit of borrowing less is that it reduces the loan interest and also the duration you have to pay it back.
One way to avoid taking out a hefty amount of loan is to buy a secondhand car. These are often cheaper and don’t require a huge amount of money. If you just got your first job and want something to enable you to commute to work, you can always go for a cheap functional car.
Pay the Loan on Time
Make arrangements for paying your loan immediately after you get pre-approval. This way, you can avoid late payments penalties and have a clean credit report. Even one late payment can affect your creditworthiness.
Provided your lender approves it, and where you can afford it, pay more than the monthly instalment you agreed upon with the car finance provider. This reduces the loan amount greatly and also lowers the loan repayment duration.
Allow the Dealer to Beat Your Loan Offer
Since you already have a pre-approval loan from another lender, you have a great chance of getting a better deal at the car dealership. You already know what the lender offers and have confirmed that you can pay. Armed with this information, you can share with your dealer the terms and conditions of your car loan and allow them to beat the offer. Don’t be surprised if the dealer gives you better terms than what you got from an outside lender. Because there is no obligation to take a pre-approval loan, if you find that you are being offered a better deal by the dealer, it’s okay to take it.
Conclusion
Researching the different car finance options is critical to finding the best deal for your vehicle purchase. While it is tempting to fall to the offer given to you by your dealer, we insist that you do a lot of shopping and compare rates and car loan terms. Even if you think you have got a great deal from a lender, you can still use this information to get the dealer to give you even better terms. In the end, it will save you money and lessen the stress that comes with getting buy a car.