If you want to buy a new car, chances are you’re going to need to get an auto loan. Just thinking about that possibility can make some people break out in a cold sweat.
The truth is that applying for an auto loan is not that scary. By far the most frightening thing about the process is that many people don’t know what they need to do in order to apply for an auto loan. Instead, they just show up at a lending advisor’s office, or worse, let an auto dealer select an auto loan for them without knowing the advantages and disadvantages of that method.
Step 1: Get Your Financials in Order
The first step of applying for any loan is to know where you are financially. This ensures you won’t encounter any unpleasant surprises when you meet with the lending advisor. It will also demonstrate to the lending advisor that you’re taking the loan application seriously.
You can start figuring out where you are financially by checking your credit score. This will let you see what a lending advisor will be seeing when you meet with them. It will also give you an idea of the interest rate you can expect to qualify for on an auto loan.
While you can get a free copy of your credit report from any one of the Big Three credit reporting bureaus—Experian, Equifax and Transunion—you can also check it for free by logging into your First Alliance Credit Union online banking account or mobile app. While there are other tools you can use to check your credit score, including financial websites like Mint and Credit Karma, you should be aware that some of them may use your personal information to offer you other loans and credit cards.
If your credit score is 600 or less, you should consider taking at least six months to improve your credit score before trying to get a loan. Make sure to pay off your outstanding bills, pay down your credit card debts and pay your existing bills on time.
You should also make sure you know what your monthly expenses are and what kind of money you’ll have available to make payments. In other words, make sure you have an up-to-date budget.
Having a current budget is just good financial sense, but in the case of applying for a loan it lets you know what you can reasonably afford to pay on an auto loan. It will also let you have your current financial information at your fingertips so you can answer a lending advisor’s questions about your finances more easily.
Step 2: Search for a Financial Institution
Once you have a clear understanding of your financial situation, you can start looking for financial institutions. You can find out which banks and credit unions in your area offer auto loans with a quick online search. You can also check out their websites to see the interest rates they offer.
For any financial institution you’re interested in, make sure to ask the following questions to ensure you make an informed choice:
- Do they have positive online reviews?
- Do they have strict lending guidelines?
- What interest rates do they offer?
- Are there any fees or service charges?
- What are the limitations on the amount of the loan?
- Have you done business with them in the past?
While you may have a favorite financial institution, it’s important that you research multiple banks and credit unions. The more research you do, the more confident you can feel about getting a good deal.
Step 3: Get Preapproved
Once you’ve selected a few financial institutions you might like to do business with, talk with each of them. Request interest rate quotes from all of them, and then compare offers. When you’ve selected a handful of offers that you like, get preapproved for a loan from the financial institution you'd like to work with.
Getting preapproved is similar to getting an actual loan. A lender will look at your credit score and financial information and based on that they will let you know the amount of money you can borrow and the interest rate of the loan.
When you get preapproved for the auto loan, you’ll want to have several key pieces of information available for the lending advisor, including:
- Driver’s license, or other official photo identification
- Social Security Number
- Basic contact information (phone, address, email)
- Proof of income (pay stubs or W2s)
- Reference’s contact information (friend or family member)
- The loan terms you are looking for (dollar amount, length of loan)
After you provide this information, the lending advisor will check your credit score, then ask you some questions about why you’re applying for a loan. For example, they might discuss any gaps in your employment history, or ask why you’re buying a car that’s $10,000 more expensive than your last one and whether you can afford to make the payments.
Getting preapproved is an extremely important step. You’ll very likely get the rate the lender offers, and it makes you a “cash buyer” at a dealership. It also lets you know the maximum you can borrow, so you won’t be pressured into blowing out your budget.
One thing to keep in mind is that preapprovals involve a hard credit pull, which can lower your credit score. In order to reduce the damage to your credit score, make sure you get preapproved by all your selected lenders within two weeks, since multiple hard credit pulls in a short time only count as one inquiry.
Step 4: Select Your Car
This is the fun part. Go out test driving, visit auto dealers and enjoy the process. Once you’ve selected your car, be sure to let the dealer know you’ve been preapproved and mention the interest rate you got. If a dealer can beat that interest rate, they will be sure to let you know.
Step 5: Finalize Your Loan
Once you’ve found the auto loan you’re looking for, talk to the lending advisor (or the dealer) and get the loan finalized. If you decide to use your preapproved offer, follow up with the lender in order to complete your loan application and finalize funding.
Before you sign the loan, though, go over it one more time. Make sure that the amount, term and interest rate are what you agreed on. Now is also the time to ask about whether the loan has any penalties, like a penalty for paying off the loan early.
If you’re happy with the loan agreement, all you have to do is sign on the dotted line, drive away in your new car and celebrate. You’ve earned it.
Get an Auto Loan With First Alliance Credit Union
Applying for an auto loan can be an intimidating process. However, if you prepare beforehand and research your loan options, you can rest assured you’ll get an auto loan that will help you get a car you love.
You can also make sure your auto loan application process goes smoothly when you become a member of First Alliance Credit Union today. Our experienced lending advisors will help you through the loan application process and make sure you get an auto loan that works for you.