How does the Auto Loan process work?

Perhaps one of the most important financial decisions that a person will make in their life is when they apply to get their first car loan. You need to know what to expect in order to avoid bad end results such as default or repossession caused by blindly jumping into a situation with impossibly high payments. Any doubts or questions that you might have at any time throughout the process should be addressed before the auto loan is completed. A trustworthy dealer will always be sure to answer any questions asked by their customers to ensure a good sale. Here are some of the questions that you should ask when you apply to get a car loan:

How is the interest rate determined for this car loan?

Most dealers will start off the process with a credit check to see the borrower’s credit score. If there is a high credit score rating, the rate will usually be low; and if the credit score is low, the interest rate will be higher. Another risk that is involved in the overall financing is the amount of the loan itself. The higher the risk, the higher the interest, so a high-priced vehicle will usually have a higher interest rate than a cheaper one. A used car loan will usually be for a lot less money than a new car, and should usually have a lower interest rate. Be sure to ask about any offers or rebates available through the manufacturer, dealer or the government for fuel efficient vehicles that create less pollution to lower your overall price. The amount of the down payment and the possibility of having a cosigner on your loan can also lower your interest rate.

Can financing be obtained before a vehicle is chosen at the dealer by the borrower?

Some dealers will insist that potential customers choose a car first and then talk about financial matters and borrowing options after the fact. Unfortunately, if the car loan is rejected because the price of the car is too high, the person’s credit score could be damaged as a result. You do have the option of looking into financing before picking a car. Try to choose a car that you know is within your budget or price range to ensure approval. The experts agree: it is a good idea to arrange your finances ahead of time, however, whenever possible so you know how much you can afford to spend on a car.

Is a down payment required in order to finance a vehicle?

A down payment is not required every time you buy a car. However, you want to ensure that you get the terms that you need in order to get a good auto loan. If adding a down payment will make it easier for you to pay monthly on the vehicle or for the lender to trust you to repay the car loan, you will definitely want to put some money down. However, if the rate or payment won’t change whether you put a down payment on the vehicle or not, then you will want to forgo putting a down payment on the vehicle in this instance.

What is special lending and what is prime financing?

Special lending is a term that describes special instances when financial loans are given to high-risk customers with bad credit scores. A prime financing institution is a lender that will only work with customers that have top or prime credit scores and financial histories. For example, a borrower that has a good flow of income and hasn’t been laid off or had a pay cut in the last two years, and has a good record of making payments on their credit cards and bills, just might be eligible to receive prime financing for their new car loan.