Taking out an auto loan can be a large commitment, but it’s an important one when you need to purchase a reliable vehicle. Many consumers need to borrow money to purchase a vehicle versus paying in cash outright, but, secured loans, they offer relatively good interest rates.
Getting pre-approved before you start vehicle shopping is a good idea. Pre-approved auto loans can save you a lot of money. When you're pre-approved, you know what to expect, what your budget is and what you’re going to pay every month. It also give you leverage at the dealership.
Here are a few key steps for qualifying for an auto loan.
Understanding and Improving Your Credit Score
Your credit score, in addition to the price of the car, is the largest factor in determining your terms. You need to qualify, obviously, and then, depending on your score, you’re approved rate will impact how much you pay every month.
You should know that you might not qualify for any auto loan if your credit score isn't at least 600. Many loan providers will require that your credit score be considerably higher for you to be approved. You may need a credit score as high as 690 with some lenders. And to get the best interest rates, you'll need a credit score of over 700.
If you have a low credit score, you might want to take some time to improve your credit score before you purchase a vehicle. You can bring up your credit score by making sure your payments are on time. You can also pay down debt to bring up your credit score relatively quickly.
Improving your credit score, greatly increases getting pre-approved auto loans, especially for new cars. Additionally, pre-approved subprime auto loans can be challenging, Truliant’s article on auto loans with bad credit can be very helpful to some buyers. Some credit reporting companies consider subprime to be a credit score between 501 and 600.
Evaluating Your Income Level
When it’s time to book your auto loan and secure funding, you will most likely be asked for documentation to verify your income. Your gross monthly income is a key factor in determining how much a dealer or financial institution will lend you. A lower income with a little debt may be more compelling to a lender than a millionaire who has a 75% debt to income ratio. And staying in a reasonable price range helps, too, and that range can vary from person to person.
Shopping Around at Different Lenders
Familiarize yourself with the posted requirements of various lenders. Some lenders post minimum credit scores and income levels for approval. This information could be helpful.
Make sure you do your research. Ask a representative from your current primary financial institution about their auto loan products. You might be able to get the best possible deal on an auto loan by working with a bank or credit union who is already familiar with your finances.
Before you buy a vehicle, it’s often a good idea to get pre-approved at a financial institution like Truliant, a leader in providing credit union pre-approved auto loans. The lender will examine your expenses, income and your credit report to determine if and for how much you qualify. With this option, you will know exactly what you can afford to purchase and what the terms will be before you shop for your new car.
At Truliant Federal Credit Union, we offer auto loans at great rates and flexible terms, even for those with challenged credit. We’ll work with you and review your situation to see how we can help. Contact us today and we’ll help you get on the road in no time.