Preparing for Your Car Loan

Congratulations! You have picked out the new car you want to buy. Now it’s time to decide how you are going to pay for it. For a car loan, you will need to prove to a bank officer, online lender, or the finance officer at the dealership that you qualify for the loan. To save yourself the embarrassment of negotiating the sale of a car with your salesman only to find out that you cannot qualify for the loan, you should take the time to either arrange your financing beforehand with an outside lender or work out your financial facts in advance. Here are some steps to take to prepare for your loan.

How much will I need?

The amount of money you will need to borrow is the difference between the total cost of the car you plan on buying (taxes, dealer fees, etc.) and the money you will be putting into the sale. That includes your down payment, if any, and the trade-in value of your car.

How much do I have?

The first thing a lender wants to know is what is your monthly income? Will you need to combine incomes with your spouse to buy a car? After paying your built-in monthly expenses, how much can you afford to pay each month for your car?

Down payment

Will you be making a down payment? If so, how much? The larger the down payment, the less you will need to borrow, and the better you look to a lender. Are you planning to use your current automobile as a trade in or sell it on your own? What is its current value? You can easily find a usable trader-in figure online, from your banker or from a current blue book at a bookstore or magazine stand. What condition is your car in? What is the mileage? How much do you owe on it? If you want to get the most cash for your car, you will need to sell it on your own.

Your credit rating

Third, what is your credit rating? If you don’t know, your banker can tell you, or you can check it online. Your credit rating is important in determining whether you qualify for the loan, and what interest rate your lender will offer you. Even if your credit rating is poor or non-existent, you may still qualify for a loan with a higher interest rate, especially if you have solid employment, a down payment, and have shown a recent history of paying your bills on time.

Now you are prepared to go to an online car loan calculator or to your banker and plug in the figures, which will give you a fairly accurate assessment of your monthly payment and your ability to make this payment. Good luck and happy driving.