When it’s time to buy a new car, you might have to apply for a loan to pay for the purchase. Although it seems daunting, knowing these five things before applying for an auto loan will make the process go smoothly.
Know About the Length of the Loan
Auto loans typically last from five to ten years. The shorter the loan, the less you’ll pay in interest. Although the smaller monthly payments are alluring, you’ll pay more in the long run.
Keep Your Budget in Mind
The length of the loan isn’t the only thing you must think about. Before setting your heart on a car out of your budget, understand your finances so you can step into the dealership with purpose.
Before applying for an auto loan, you need to know how much you’re able to pay toward the loan each month. Choose a loan payment plan that’s no more than 10 percent of your monthly net pay. This method will allow you to live without financial stress and make your payments on time.
Understand Hard Inquiries From Soft Inquiries
Hard inquiries, or hard credit checks, occur when you give a lender permission to check your credit score. In return, you may see the score drop by one to five points.
Soft inquiries include checking your own credit score or when a company performs a background check for employee verification. This type of inquiry won’t bring down your score.
Avoid Sending Several Applications
Submitting an auto loan application is considered a hard inquiry. Therefore, applying for too many loans will negatively affect your credit score. The small drops can quickly add up and ruin your score. Choose two or three lenders, and send the applications. It will minimize the decline on your credit score while securing the auto loan you need.
Gather All the Essential Documents
After finding the perfect car, you want to get the auto loan as quickly as possible! However, one factor that could delay the process is forgetting to prepare all the essential documents for the application process. Here are some of the documents you’ll need:
- Personal information: a photo ID (driver’s license, passport, state-issued ID) and birth certificate.
- Proof of income: use copies of pay stubs from the last month of employment. You can also bring a W-2 or print the past six months of pay stubs to ensure you provide the proper information.
- Proof of residency: bank statements, utility bills, lease agreements, or mortgage statements.
- Vehicle information: include details about the make, model, mileage, and vehicle identification number (VIN).
Auto loans in DC, VA, and MD are ready for you! Contact Democracy Federal Credit Union when you need assistance purchasing a vehicle. We’ll make the loan process easy for you.