While cars today may be more accessible than ever before, many are still a big investment. This means that the majority of first-time buyers are unable to buy a car outright and need to consider getting finance for their purchase.
Like buying a house, buying a car is a major financial commitment, and it should be treated as such. This requires some research and analysis. And when you finally get to speak to the seller of the car or the dealership, you should have a prepared set of questions to ask to help you make an informed decision.
“Knowledge is power” holds true when seeking a car loan. Here are the seven key questions you must ask to get the best car finance options through a dealership before driving off the lot.
1. What is my credit score?
This is a personal question you must ask yourself before visiting a car dealership. Your credit history directly influences your ability to negotiate favorable terms when financing a car. However, it is important to note that it’s not the credit score alone that determines your interest rate. A good credit score, along with asset backing and strong lending history, will allow you to achieve some very favourable deals in the market.
2. What are my options if I have bad or unestablished credit?
Having bad credit may result in higher interest rates. As a first-time car buyer, you also may find that you have little to no credit established. This will make it difficult to get approved for loans. But whatever your financial situation is, there are finance options available to obtain a loan.
Compare lenders and loan providers to find alternative credit sources. There are credit lenders specifically built to assist buyers with bad or unestablished credit. Using a car loan calculator will help you understand what your monthly payments may be.
3. Are there prepayment penalties on this loan?
While some lenders won’t penalize you for paying your car loan off early, not every lender is the same. Some lenders levy prepayment penalties, such as foreclosure charges for wanting to end your tenure early.
Make sure you understand the terms of your finance agreement so you aren’t surprised by prepayment penalties should you decide to pay off your car loan faster.
4. What fees are associated with this car loan?
Besides the interest rate, there are also less obvious expenses that accompany a car loan. Enquire about these additional fees and charges, and be sure to read the terms and conditions of your contract before you sign anything.
Costs you should know about include:
- Establishment fees
- Dealer origination fees
- Registration fees
- Guaranteed Auto Protection (GAP) insurance
- Extended vehicle warranty
- Negative equity financing
- Credit insurance protection
- State and Local tax
You should also be aware of dealer-related fees that may increase the cost of your auto loan.
These include floor plan fees, advertising fees, and destination and delivery fees. It’s recommended that you negotiate with the dealer to waive or at least lower these dealer-related fees.
5. Do I have to put money down when financing a car?
No two car loans are created the same. Each loan agreement is determined by an individual’s credit history and financial situation. As such, when working with a lender, enquire about the down payment.
While some lenders may give you a $0 down option, don’t immediately assume every lender will. When enquiring about your car financing options, ask if you’re required to pay a set amount for the down payment and what that set amount should be.
6. What documents do I need?
When applying for a car loan, lenders will need to assess your repayment capacity. In order for them to do so, you’ll be required to present certain documents to get your car loan application approved.
The typical paperwork a lender is likely to request includes:
- Proof of identification (driver’s license and evidence of residential address)
- Financial information (proof of income, bank statements, assets, and liabilities)
- Identification of the vehicle being purchased (registration number and VIN and purchase price)
- Proof of insurance
Having these documents on hand before meeting with a lender will help you get your car loan approved faster.
Car ownership is a dream that many have. And for many, a car purchase will be the second-largest investment they make.
You may have heard the advice, “You can never ask too many questions.” This especially rings true when taking the car financing option. So don’t be afraid to ask questions. After all, the more you know, the better equipped you’ll be to get a loan that suits your needs.