When applying for a car loan or lease, you will need to show the finance company that you can afford it. That means proving that you have an income and other assets to repay them. If you’re applying for finance from a dealer, they will also want to see that you can afford their monthly payments.
If you are financing or leasing your new wheels with a generic brand, we have plenty of information here that will help get things moving smoothly when it comes time to arrange your finance contract. Read on for everything you need to know before getting financed when buying a new car.
Check Your Credit
One of the first things to do when applying for car finance is to check your credit. Credit checks are widespread when financing a car; they are part of the application process. Credit reports show how responsible you are with your current debt, including credit cards, mortgages, student loans, and car loans.
When financing a car, lenders will use your credit report to find out how responsible you are with your current debt, including credit cards, mortgages, student loans, and car loans. Having excellent credit will make it much easier to get a reasonable rate and terms on your car loan. However, don’t be too disheartened if your credit score is low, as there are companies that specialize in poor credit car finance, meaning that your past financial difficulties should not hold you back from getting the car of your dreams!
Why Is Credit Important When Financing a Car?
Credit is the main factor that finance companies and car dealerships look at when determining the interest rates and payments you’ll be charged for your new car loan. The higher your credit score, the better your chance of getting a lower interest rate.
The amount of money you need to finance your new car is determined by the risk the finance company is taking on. The more risk they take, the higher your monthly payment will be.
If you have a bad or low credit score, you may not be approved for a car loan at all, even if you have the cash to pay for the car in full. If you’re barely scraping by and can’t pay off a car loan on time, a finance company has the right to take your car away from you.
How to Check Your Credit Score
You must know your credit score before shopping for a car loan. If you’re purchasing a new car and plan to finance it, check your credit score first. A good rule of thumb is to check your credit score at least once every four months to see any changes that may occur.
Showing Proof of Income When Financing a Car
Even if your credit is excellent, you will probably still need to show proof of income when applying for a car loan. You’ll need to prove that you can afford the monthly payments on your new car loan. Most finance companies will ask you to provide your most recent tax return and W-2 forms. You may also be asked to provide a statement from your employer that lists your yearly salary, current position, and contact phone number.
Should You Borrow or Lease?
Borrowing money to finance a car can be risky, especially if you have bad credit. If you’re short on cash, it might be hard to make the payments on your loan or lease. Leasing a car is a good option if you don’t have the cash to purchase a car. If you choose to buy a car with cash, you can skip the monthly payments, but you will probably end up paying more in the long run.
The total cost of owning a car can vary by make and model, driving habits, and fuel costs. You can estimate your car payments using car loan calculators online.
Existing Loans and Financing Conditions
If you already have car loans or other loans, you will probably have to factor that into your monthly payment when financing a car. Most finance companies will consider your existing debt when calculating your monthly payment.
If you have a car loan that’s almost paid off, some finance companies may look at your payment history and count that as equity in your car. This may help lower the rate on the remaining balance of your current loan.
Bottom Line
Before you apply for finance on your next car, check your credit score and show proof of income. If you have bad credit, it may be hard to get a loan or lease, or you may have to pay a higher interest rate. If you can, it may be a better option to purchase a car with cash, as it will be easier to pay off.