Whether you’re buying a new car or simply need some additional financing for the purchase, you need to consider the pros and cons of applying for car finance from a bank.
While you may be tempted to buy a car from a dealership, it’s better for your wallet and your credit rating to use bank financing instead. You’ll avoid surprises, as the bank will look at the bigger picture and find the right car for you.
Many dealerships try to “hook” you into a car you cannot afford. Moreover, banks do better when their borrowers can pay off the debts.
Getting a loan or car finance
While obtaining a loan or car finance is relatively simple, the process of acquiring a loan can be a little more complicated.
Whether you want to get a new car or refinance your existing loan, there are some important details that you should know before making a decision.
Many lenders do not want to see their loan applications turned down, and the last thing they want is to deal with defaulting on the loan. Lenders will be more likely to consider extenuating circumstances and emergencies when assessing a potential customer.
Applying for a loan or car finance
Before you apply for a loan or car finance, you should gather your documentation. It should include proof of your identity, such as a photocopy of your driver’s license, a current utility bill, and two recent bank statements.
If you don’t have these documents, lenders will contact third parties to verify your identity. Be prepared to provide them with all relevant documentation, so they can process your application without delays.
Getting a loan or car finance from a dealer
Before you decide to apply for car finance from a dealer, it is important to understand the differences between bank loans and dealer loans.
Dealer loans don’t rely on credit as much as bank loans do, but they still require you to present proof of income, address, and references.
Dealer staff will also ask you about your credit history and budget, so be prepared to answer these questions honestly. A bank loan is much more expensive than a dealer-financed loan, but it is possible to qualify for it.
Getting a loan or car finance from an outside lender
Before you apply for car finance, you should compare the interest rates of different lenders. Your bank and credit union may offer preferred rates, but you can compare them all online for comparison shopping.
It’s also important to check with your lender about the private-party purchase you’re considering. Some lenders may restrict the type of car you can purchase from a private party. And make sure you learn the language of car finance to avoid any unpleasant surprises.
Getting a loan or car finance for buyers with bad credit
If you have bad credit, you can get a loan to buy a car, but you need to be aware of the various options available. First, you must avoid dealership financing deals.
The interest rate on these deals are typically quite high, and you can end up with a loan with horrendous terms. Also, never use your credit card to finance your new car.
Not only will you be stuck paying a high interest rate, but it will also hurt your credit rating.