We at Denver Auto Approval Center want to prevent car buyers from thinking negatively about the auto loan process. Auto financing does not need to be a stressful process. If you do it right, you will find that financing a car is not that difficult. Here are the key steps to keep in mind:
Determine your loan budget
The first step in the auto financing process is knowing how much you should borrow. Find out how much you can afford to borrow by assessing your monthly budget. See if there is room in your monthly budget for car payments and how much room there is. The rule of thumb is that car payments should not exceed 20 percent of one’s take home pay.
To know the affordability of a vehicle purchase, make use of any of the online auto loan calculators available.
Consider extra expenses
Note that a vehicle’s affordability is not determined solely by the auto loan. You have to consider all car ownership costs, including insurance, fuel as well as repair and maintenance. The auto purchase itself involves a number of additional expenses, such as taxes and other fees. Make sure to consider these as well when determining your budget.
Experts advice against financing taxes and other fees related to the auto purchase. Pay for these out of pocket and finance only the purchase price of the car.
Choose a loan term
Longer loan terms are now available. At present, you can repay the financed amount in 97 months. While extending your loan term will significantly lower your monthly payment, you will pay more in interest and be upside down on your loan (i.e. owe more than the car’s value) for longer. Choose the shortest term that you can afford. Loan terms that are four years or less are deemed best.
Pick a vehicle that’s within your budget
When you have set a budget, you should stick to it. Resist the urge to spend a bit more on a vehicle. Choose a vehicle that you need and not one that you want. It would be a good idea to pick a vehicle that has a history of reliability, and one that retains its value longer. A vehicle is a major expense, so you should get the most out of it.
Check your credit
Postpone applying for an auto loan until you have checked your credit. Get your credit score and pull a copy of your report. Knowing your credit beforehand is crucial in auto financing. You will know what you qualify for, which allows you to be in a better position to negotiate.
There are many sources of auto financing worth considering. Shopping around helps you narrow down the choices and find the best rate you are eligible for. Only dealerships can offer zero-percent financing, but it is often more advantageous to obtain financing elsewhere. Getting financing from a source different from the dealer enables you to shop like a cash buyer, and being a cash buyer allows you to save on the purchase.