If you don’t want to purchase a vehicle with cash, your next best option is probably to get a car loan. If you’re wondering what your car loan options are, or if you’d like to know more about the process of how to get a car loan, read on.
How does a car loan work?
When you apply for a car loan, you’ll be asked to provide your personal information and your employment information. This is necessary to verify that you are employed and able to make the payments needed on the vehicle of your choice. Once you’ve been approved and your loan has settled, you’ll need to start paying back your loan to the lender. These payments are normally made monthly over a duration of between 1 and 7 years, and the payments will also include interest and lender fees.
The loan amount
The amount of money that is available to borrow depends on the lending institution and their requirements, but also on your job and your credit score. Your credit score is also normally a factor in how much you can borrow because lending companies will want to make sure that they are able to collect the money owed to them.
If you’d like to increase the amount of money you can borrow, you can increase your loan term (ie: from 3 years to 5 years). Bear in mind that the longer your loan term, the more you’ll end up paying in the long run.
Interest rates
The interest rate that you are willing to pay again depends on the lending institution, but also on your credit score. The better your credit score, the lower the interest rate will be. You may also want to look into companies with special offers or discounts if you have a high credit rating. When you’re comparing interest rates, you’ll probably see the terms ‘APR’ (annual percentage rate) and ‘comparison rate’ being thrown around. The APR doesn’t include any lender fees and charges, but the comparison rate does. For this reason, it’s a good idea to rely more on the comparison rate of each loan, as it’s a more accurate indicator of how much you’ll actually end up paying. To get the best low interest car finance deal, it’s a good idea to compare lenders online, head to Driva to get started.
How to get a car loan with bad credit
If your credit score is not the best, you should be prepared for a lender to ask that you pay extra money in order to get approved for a loan. You may need collateral from an asset such as property or equipment, and this could mean that your finance options are not as diverse.
Lenders may also take into consideration your employment situation if this is a factor in their decision. For instance, if you’re self-employed and only work seasonally, the financial institution will need to make sure that they can actually get money out of you before lending you a car loan.
What do I need to apply for a car loan?
To get approved for a car loan, you’ll need to provide the lender with pay slips, a bank statement and your driver’s license. This information will be used to verify your employment, your payment history, and your identity. Depending on the lender, you might need to provide some additional documentation as well.
