Tips for Applying for An Auto Loan

Tips for Applying for An Auto Loan

BIG Ideas:

  • Before looking at cars, determine your monthly budget and any funds you may have for a downpayment.
  • Auto loan rates and terms can vary by lender, so shop reputable lenders for the best rates.
  • Having a good credit score can help you qualify for an auto loan and get a better rate that will lower your monthly payments.

You’ve conquered the challenges of college – the late-night study sessions, the 10-page term papers, and of course, the juggling of your busy social life. Now, you may be ready to take on a new challenge in the world of full-on adulting: buying a car.

With the high cost of cars today, you’ll likely need an auto loan. Before you do that, though, it’s important to get educated about car buying and how to put yourself in the driver’s seat.

As part of Brazos’ commitment to empowering you to take charge of your financial life, here are some helpful tips about buying a car and getting an auto loan.

Ready to start your car-buying engine? Let’s go …

Tip #1 – Determine your needs. By now, you probably know that you have lots of vehicle options – from a good-on-gas compact to a roomy SUV. Before you hit the lot or visit online buying sites, determine what you need in a car. For example, if you plan to use it to commute to work, you’ll likely want a car that gets good gas mileage.

You also must decide if you want a new or used car. There are benefits to both. New vehicles are equipped with the latest technology and safety features, but they are more expensive and will depreciate quickly. A used car can be more affordable, but it could cost you more on maintenance.

Tip #2 – Know your budget. The decision to choose a new or used car depends a lot on your budget. You should know how much money you can afford for a down payment and monthly payment. This can help you determine your price range. It’s super important to take a realistic view of your finances and other goals and not get lured into buying a fancy car you can’t afford. Also, remember that the more expensive a car is, the more you’ll pay in insurance and taxes.

If you don’t have a monthly budget, you can create one by reviewing your income and expenses. To make budgeting easier, use an app.

Tip #3 – Know your credit score. A credit score is a numerical calculation lenders use to determine the risk of giving you a loan. The higher your credit score, the easier it is to qualify for a loan and get the best possible rate. Through usa.gov you can get your credit score from the three major credit bureaus. If you don’t have a strong established credit history, you could consider getting a co-signer. Keep in mind that having a low credit score may not keep you from getting an auto loan, but it could result in your paying a higher rate of interest.

Learn more about what a credit score is and how to increase yours.

Tip #4 – Narrow down your search. Once you know the type of car you like and your budget, you can use online sites to shop around and look at your options. Make sure you and review ratings and customer reviews for safety, reliability, maintenance costs, etc.

Tip #5 – Get pre-approved. When you’re ready to buy a car, talk to your lender about getting pre-approved for an auto loan. A pre-approval is basically a conditional approval that will help you determine how much you can qualify for. It can also give you a negotiating edge with a seller.

Tip #6 – Understand the difference between leasing and buying a car. Leasing a car is like paying rent on a home in that you pay a monthly fee to use the vehicle for a set term. Unlike buying a car, with leasing, you won’t build equity in a vehicle; so, when the lease is up, you won’t have an asset at the end of the term.

Tip #7 – Shop around for the best rates. Auto loan rates and terms can vary from lender to lender. So, when you apply for car loans, find a reputable lender, like a bank or credit union, that offers competitive rates. The lower your rate, the lower your payments and the more you’ll save over the life of your loan.

Tip #8 – Look for deals for graduates. Many auto dealers offer special discounts for college students and grads, so be sure to ask what they can do for you.

Buying a car and applying for an auto loan is a giant step on your path to adulthood. Make sure you’re well prepared so you can cruise on ahead.

Brazos is Here to Help You Build The Bright Financial Future You Want

For more than 40 years, Brazos Higher Education has been helping make education more affordable for students. As a Texas non-profit, we offer great rates and no fees on student loan refinancing. Contact us to learn more.