It’s time to shop for a car loan, but how do you make sure you get the best deal? If you have bad credit or limited income, you may wonder if any lender will even consider your application without laughing you out of the dealership. For starters, the secret is not to limit yourself to dealerships and buy-here, pay-here car lots. You have so many other options today, and we want to help you shop for a car loan like a pro.
Now that you understand what a lender may look at when considering you for a car loan, it’s time to think about where you should go shopping for a car loan. The days of visiting a local dealership and crossing your fingers are over. You now have more options than ever when financing a new car.
Explore The Best Ways to Shop for a Car Loan
We don’t want to say that any option for securing a car loan is a bad one, except for scams designed to take your money without delivering a reliable vehicle. There are a growing number of options out there, and every consumer must find the best resources for their personal circumstances. The following list will introduce you to six of the best ways to shop for a car loan today. You can explore each option in more detail to determine their suitability to your current situation.
1. Secure a Car Loan from Your Bank or Credit Union
What if you could shop for a car loan without stepping foot on a car lot or talking to a pushy car salesman? It can happen when you shop for the loan first and the car second. It’s just like getting pre-approved for a home loan before you start looking at homes for sale in your area. You have to know how much you can afford to finance and ensure that you have the loan in place before you start fielding your options.
Banks and credit unions are a legitimate source of auto loans, especially if you have an established relationship with the institution. If they already have access to your banking history and can easily check your account to see your regular income, they may give you a chance even if you don’t have perfect credit.
Many credit unions are known to offer lower auto loan rates than larger banks. Some may even help you shop for a car that fits your needs from car lots and dealers that are already affiliated with the institution. Just keep in mind that credit unions and banks will check your credit and generate a hard inquiry, so try to go into your local branch and ask a loan processor if you have a good chance of acceptance before placing your application.
2. Shop for a Car Loan at a Smaller Car Lot with Different Financing Options
Smaller car lots often advertise auto loans for bad credit or low down payment options. Many have in-house financing, so they may approve consumers that are routinely turned down at dealerships in the same area. That’s most likely to happen if they allow you to buy the car directly from the lot and make payments to the lot rather than financing through a larger lender. The catch is that the lowest down payments advertised aren’t always offered to consumers with the worst credit or limited income.
Yes, you’re likely to need more money upfront if you make less money per month. Lenders want to see that you have a vested interest in making timely payments on the loan because they don’t want to lose their money if you default. If you don’t have a lot of monthly income, they will limit the amount you can borrow unless you can build trust through your down payment, credit history or other factors.
Most smaller car lots only offer used cars, so you won’t have the option of buying a new car. Many cars sold on these lots don’t come with much of a warranty, and some are sold as-is and you’re still required to make your car payments if it breaks down. A small lot will also check your credit, which results in a hard inquiry on your credit report.
Before everything, we recommend comparing loan options online. You may find reputable lenders offering better deals online, and those lenders may free you to shop for a car on any lot rather than limiting your selection to one small lot. If nothing else, you’ll have some bargaining power if you know what options you would have when shopping for a loan online.
3. Visit a Dealership
Dealerships are no longer at the top of the list for lenders that offer the lowest auto loan rates. Some are more willing to work with consumers with poor credit than others, but you will generally get the best deal if you have a high credit score and/or a large down payment. For some dealerships, you will need both of those factors to qualify for the super low-interest rates and cashback offers that you see advertised online.
You can visit a dealership just to see what they may offer, but keep in mind that they will check your credit and it will show up as a hard inquiry. Visiting multiple dealerships or car lots in a short period of time will lead to multiple hard inquiries, which in turn lowers your credit score in the short term. That could make it a bit harder to shop for a car loan through other options on this list if you don’t secure a loan at one of those dealerships or car lots.
If you do have great credit and believe you will qualify for some great deals advertised by many dealerships, you may want to consider shopping for a car loan online before you visit the dealership. You will have a great idea of your options before you walk onto the car lot, and that can give you added bargaining power when negotiating your deal.
An auto loan is very similar to almost any other loan you might get. At its very basic nature, it simply means that you are borrowing the money to pay for your new vehicle. #autoloans #businessloans #movingloans #weaddingloans ?https://t.co/E8AAzUzeVp pic.twitter.com/nUYEHX0PcE
— Loanry.com | Loan Shop ? (@LoanryStore) February 20, 2020
Compare online offers
Finally, a dealership may seem like your best option if you want to buy a new car rather than something used. That was once the case, but online auto lending now gives you more options even if you prefer a newer model or something brand new. Comparing loan options online first will always give you the information you need to size up the offer you receive from your local dealership.
4. Shop for a Personal Loan, and then Apply the Funds to the Vehicle of Your Choice
Have you considered bypassing the process of applying for a car loan entirely? You can do that by shopping for a personal loan and using the cash to buy a car. In most cases, you will only receive enough money to buy a used vehicle, so new cars won’t fit your budget unless you have additional funds to add to the amount you borrow. If you do have a down payment in hand, you may end up with enough money to buy a reliable vehicle without the high-interest rates sometimes offered on car loans.
The best way to find out about personal loan offers is to compare rates from various lenders online. Loanry allows you to shop through a convenient marketplace, which brings reputable lenders together to save you a lot of time. You can explore auto loans and personal loans to see all of your options before making a final decision.
Just keep in mind that personal loans often have shorter terms than auto loans. You may have less time to pay the loan back, and you may still need to offer collateral when securing the loan. The car you’re purchasing is typically the collateral when you secure an auto loan, but other types of collateral are possible when you shop for a personal loan. Terms will vary from one lender to another, so comparing online is the fastest way to size up each lender and select the one offering the best deal for your current circumstances.
5. Finance a Car Through a Line of Credit or Credit Card
This financing option allows you to shop for a car loan online or in your local area without worrying about finance terms. Any dealer able to accept a credit card, debit card or personal check can accommodate your needs when you pay in full with a line of credit or credit card. The higher your limit on the card or line of credit, the more you will have to spend on the car. You may end up with much lower monthly payments than you would have to pay when securing a traditional auto loan or personal loan.
One thing to keep in mind when financing a car in this manner is the damage it may do to your credit score in the short term. Your credit utilization rate will jump up immediately when you swipe your card or charge up that line of credit. That may limit your options when shopping for home loans or personal loans until you pay off some debt and lower the utilization rate.
You should also consider the interest rate on your credit card. Take the time to shop for a car loan online first. That will show you what interest rate you might secure if you were to take out an auto loan. If those rates are much lower than your credit card interest rate, you may find a car loan or personal loan the more affordable option.
Get Information in the Bank Where They Already Know You
If you have established a long-term relationship with a bank that issues one of your credit cards, consider contacting them to ask about an auto loan. Some banks back credit cards and will also offer personal and auto loans to customers who pay their bills on time for a long period of time. They’re familiar with your payment history, and that may prompt them to give you a lower rate than other lenders even if you don’t have the best credit or the most substantial down payment.
6. Shop for a Car Loan Online
What if you could get a car loan online without leaving the comfort of your home? The availability of internet access around the clock has stimulated a growing auto sales market online, and many lenders are now accepting applications from consumers regardless of their location or where they want to shop for their new car. Even if it’s the middle of the night in your time zone right now, you can start shopping for a car loan immediately.
Loanry.com is one of the best ways to shop for a car loan online. We allow you to compare offers from multiple lenders at any time of the day or night. Your location doesn’t matter, and your personal information is always protected. Whether you’re interested in credit cards, personal loans or auto loans, we can help you find lenders willing to work with your credit score and other financial factors.
While there’s never a guarantee that you will find an online auto loan lender overnight, there’s a good chance that our marketplace will highlight options that you don’t know are available right now. Whether you have bad credit, fair credit or excellent credit, it’s always to your advantage to allow lenders to compete for your business. Don’t assume that you aren’t qualified for a car loan before you give our system a chance to compare offers generated just for you.
Factors that Determine Auto Loan Eligibility
Have you heard that it’s difficult to secure an auto loan these days if you don’t have perfect credit? That’s far from the truth, especially if you know how to shop for a car loan. There are many ways to secure a loan for a new car even if you have bad credit or limited funds for a down payment. The key is learning how to shop for a car loan with the right lender. That starts with understanding what a lender will look at when they consider your application for an auto loan.
Most lenders will look at the following factors when you ask to borrow money to buy a car:
You don’t need perfect credit to qualify for an auto loan, especially if you impress the lender with other items on this list. If you can catch up late payments, avoid hard inquiries, and eliminate some old debt in order to raise your credit score before applying for your loan, you may have a better chance in the credit department. If you are working on your credit score improvement, you are in a good position to even save money on your car loan.
Many auto loan lenders don’t look at old medical debt or other negative marks on your report. They may look at any previous auto loans that you’ve secured, especially if they ended with repossession or other negative circumstances.
Make sure you can prove your average income for at least the previous three months when you start to shop for a car loan. Providing paycheck stubs or bank account statements will help you establish your income. Tax returns are typically not accepted because they don’t show a monthly breakdown of the income for the recent past. Car loan lenders want to verify that you have enough income coming in right now to pay your car payment. If you receive child support or other types of income, you will need proof of that if you want to include it in your income total.
The more you put down on the car upfront, the lower your car payments will drop and the more comfortable a lender may feel lending money to you. If you have bad credit or limited income, you may need a more substantial down payment to receive approval for a car loan.
If you have a vehicle that you can trade-in, it may decrease the amount of money you need to borrow. If you can provide a reasonable down payment plus a trade-in vehicle, you may have a great chance of getting a car loan with an affordable monthly payment even if your credit is less than ideal.
Financing an auto loan isn’t as difficult as many consumers assume, even if credit scores and down payments aren’t ideal. Use the tips presented here to shop for a car loan that fits your budget and personal needs. In many cases, you will benefit from shopping for financing options before you even start looking at cars for sale.
Theresa Hammond is a single parent who learned the basics of personal finance the hard way. She now spends her days researching and writing about financial tips and tricks that are relevant to everyday people. She’s also raising two children who have more financial sense than she had before the age of 21. Her writing extends from personal finance to health, wellness, and even a bit of fiction.