Are you thinking of buying a car? With inflation rates soaring high, purchasing a car seems impossible. After all, people don’t have enough savings available to fund a brand-new vehicle. The next best option is to seek an auto loan or external financing. Many people think they will drown themselves into debt by taking a car loan, but that’s not true.

Nowadays, acquiring a loan has become straightforward. Banks and financial institutions have a short application form with minimal requirements, making it easy to apply for an auto loan. However, that doesn’t mean you can head to the bank and apply for one. Without proper research and understanding, auto financing can be a tricky trade. Therefore, make sure you know the ropes. Understand how the financial markets work today, from the best lenders in town to financial scams.

Further, weigh the risks and benefits associated with a car loan before you apply for one. You must ensure your monthly income is substantial enough to cover monthly repayments. If you don’t know much about the financing world, keep reading. Here we are highlighting six tips for getting a car loan.

1. Find Reputable Lenders

Once you begin searching in the market, you will come across many car dealers offering attractive deals at low-interest rates. You might find the deal striking and tempting, but it doesn’t need to turn out a success. Hence, do a little homework instead of settling for the first offer. Find the banks and financial institutes with a stable reputation in the market. After that, compare their car loan rates with other banks.

You can even do location-specific searches to find the best deals within your region. For instance, if you live in New Zealand, look up the best car loan rates in New Zealand to find the best lenders. Besides the rate, check their market share. Usually, big banks offer the lowest interest rate with maximum security. However, they have tight and stringent requirements for loan approvals. All in all, you have to find a lender that best fits your requirements.

2. Check Your Credit Report

Any idea what your credit score is? Most people aren’t aware of their credit ratings and score. In the finance world, these two parameters determine the fate of loans. Therefore, you have to keep a close eye on your credit reports. There are three credit rating agencies – Moody’s, Fitch, and Standard & Poor. You can log in to their website and download your credit report.

However, make sure to check all three because you never know which one the lender will use. It would give you time to fix any mistakes and improve your credit score.

Now, let us explain how credit score affects your loan application. The rating agencies score between 300-800, with 300 being lowest and 800 being highest. Borrowers with a 600-800 qualify for loans easily since it reflects their credibility. In addition, they get loans at a lower borrowing rate because the risk is lower. On the other hand, people with poor credit scores end up with rejected applications or high-interest rates. Hence, make sure your credit score is up to par before filling in any car loan application.

3. Get a Pre-Approved Rate

After shortlisting a few lenders, start requesting interest rate quotes to compare the offers. As lenders know they are competing with other banks, they will be giving you the best possible rate. For this, you have to apply for a pre-qualification auto loan. It will provide an estimation of the loan and interest rate you can expect to qualify for, based on limited information. However, this won’t be the final rate. Lenders can change the rate after conducting a full credit check.

At the same time, pre-approval is a step up from pre-qualification. It requires an extensive credit check, temporarily lowering your credit score. It is because the lender has a lot of information about your credit history and personal data. As a result, the estimated rate will be closer to the final rate you receive upon loan approval.

4. Find Your Car

Now that you have financing offers in hand, know the maximum car price you can finance. Determine the amount you are willing to pay for a down payment to know the exact financing amount. Also, determine whether you want to get a new car or an old one because lenders have different regulations and requirements. In some countries, you can’t get financing for a car older than five years. To avoid any disappointment, be sure to check the loan offers for excluded brands. Sometimes, lenders exclude certain car manufacturers and types of cars.

Moreover, some banks require borrowers to shop through a specific network of dealers which can be restricted. Hence, make sure your lender doesn’t have any such requirements. Lastly, learn about the time restrictions. Some lenders only give 30 days to use the loan amount. So, if you run out of that time, you will have to extend the offer by completing more paperwork. Thus, keep everything ready before you go to sign the contract.

5. Beware of Financial Scams

Before getting the keys to your shiny new car, you will have to sign paperwork. It will involve the contract documents, terms and conditions, and much more. That’s the time when most financial institutions indulge in financial scams. Some add hidden charges, whereas others bring in terms that weren’t discussed beforehand. For instance, your lender might add gap insurance. In some cases, lenders put penalties on early payments without intimation. Such things drain additional cash from your pocket, making your car more expensive.

In some cases, the dealership calls saying they could not get financing approved at the agreed-upon price. Remember, this is nothing but a scam to negotiate a new loan at a higher interest rate. To avoid fraud, you have to show the dealership the contract letter and the final approved rate.

Final Thoughts

Even though auto loans have become accessible, you have to research properly. You have to stay on top of all paperwork, from getting the lowest interest rates to flexible loan terms. In addition, find your dealer and car beforehand to avoid any setbacks. And most importantly, make sure the loan repayments don’t exceed 50% of your gross income. It will get your loan approved while keeping you away from financial constraints.