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Apply For a Car Loan with These Easy Tips

Jacaranda Team

●December 17, 2020●5 minute read

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Taking out a car loan is a big responsibility because it means you’re in debt until you can pay it off. The last thing anyone wants is to get stuck in an unfavourable arrangement with no way out. But where do you start with your application? If this is the first time you’re applying for a loan, the process might seem challenging. Not to worry, in this post, we’ll run you through the basics of applying for a loan. The following eight tips will make your next loan application a breeze.

Prepare your finances

The first thing to do when you want to apply is to ask yourself, ‘what’s my financial state at the moment?’ Knowing where you’re currently at is a great way to start because it gives you a good idea of what your budget should be. Update yourself on the status of your credit score, so you don’t waste your time applying for car loans that emphasize the need for a clean record. On the other hand, if your rating is excellent, it can put you in a perfect position to find great offers. In case, every financier, be it dealership or bank will want a record of your financial history. Having it at the ready shows that you’re serious about your application, and they will treat you accordingly.

Consider all the variables

It’s not uncommon for first-time applicants to look at the interest rate on a deal and think, ‘wow, that’s a pretty awesome deal.’ But interest rates aren’t the only determinant of your monthly repayment, and sometimes using it alone can be misleading. Even 0% interest rates aren’t all they appear to be, why? Well, they often increase the price of the car and charge more exuberant fees. To find out about all the charges. Check or ask the lender about their establishment fees, or account keeping fees. Something worth looking for is a discount on early repayments which can help you save money.

Fixed-rate over variable rate

You may hear these terms thrown around with only a vague understanding of what they mean. Well, to give you a better idea, a fixed-rate loan is one where the interest remains the same over the tenure of the agreement. In comparison, a variable rate is subject to fluctuations over the entire course of the loan. Now, the latter is usually lower, but because the lender can decide at any time to increase their rates, it’s not often ideal for long-term loans.

Fixed rates are more reliable, and you can easily plan your budget with the assurance you’re not in for any surprises, especially if you plan to use three years or more to pay off your debt.

Be wary of special deals

There’s a saying that goes, ‘if it’s too good to be true, it probably is.’ That phrase applies to car loans as well. Sometimes a dealership comes to the table with an offer so lucrative; it’s hard to refuse. An example is the 0% interest we mentioned earlier or free charges for an entire year. It’s incredibly tempting to take these kinds of offers when you want to get a relatively expensive car. It would be borderline crazy not to jump on these ‘special offers,’ right?

Unfortunately, these dealers aren’t always forthcoming with the real terms of such deals. It’s not uncommon for them to hike up their fees, or the price of the car so you think you’re getting a great deal. But in reality, there’s no real difference, and in some cases, you could be paying more. So always pause when you see such deals and be more critical about the terms before making a decision.

Explore your options

Never settle for the first option you see without seeing what other dealers are offering. Even when the interest rates and other variables look good, there’s always the possibility that you could get a better choice elsewhere. Knowing what other lenders are offering to give you leverage to haggle off some numbers if their rates are negotiable; something you ordinarily wouldn’t be able to do efficiently without prior knowledge of how the market looked. Don’t make promises before you’ve had a chance to see all your options to avoid falling into the trap of an agreement.

Get help

A lot goes into researching during a loan application, and to be honest; you might not always have the time or energy to do it on your own. Even if you do have those resources, without a sound financial knowledge, you might still find yourself confused and blindsided by a lender’s criteria you didn’t correctly understand. Rather than going with a dealership financier and risk getting cheated with extra convenience fees, you could seek out a car loan broker. The broker acts as a bridge between you and the lenders, and because they are familiar with the lending space, they can secure you a better deal.

If you can afford to, it’s worth the extra time you would spend analyzing each lender’s term with your search bar open to look up every unfamiliar term. Besides, you could even avoid messing up your credit score with too many applications because the broker can tell you which lenders you can apply to.

Apply when you’re satisfied

The final tip on our list is to only apply for a car loan when you’re ready. Don’t feel pressured by financiers to send in a hard inquiry when you’re not prepared. More applications look bad on your credit file and can limit your options if you don’t get approval. It would help if you only made soft inquires about rates from lenders until you are ready to quote. It’s best to specify that you’re still currently looking through your options, and any information you give out is not for a credit check.

So there you have it, seven easy tips for anyone applying for a car loan. Your biggest take away should be that you need to seriously consider all offers on the table, and get help when you need to. Now, you’re ready to start applying.

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