If you are thinking about getting an auto loan, the first thing you will need to decide is where you want to apply. It’s important to explore all of your options, including online lenders. But unfortunately, there are a number of misconceptions out there about online auto loans. Before you choose a lender, make sure you understand the truth behind these common online auto loan myths:
You Should Start Shopping Before Getting Pre-Qualified
If you’re serious about buying a car, you should get pre-qualified before you start shopping. Why? Getting pre-qualified in advance gives you time to shop around for the best loan. If you wait until you’ve found a car, you might feel pressured to take the first loan you are offered.
It will also make the process of shopping at an automotive dealership less stressful. If you have a pre-qualification letter in your hand, you won’t need to worry as much about figuring out your financing while you’re at the dealership. Instead, you can focus on looking for the right car.
Plus, getting pre-qualified ahead of time makes it easier to set your budget and figure out how much you can afford to spend before you arrive at a dealership. This way, you won’t make the mistake of looking at cars that are out of your price range.
You Can Afford the Amount You Are Approved For
Some people assume that the amount they are approved to borrow from a lender is the same as the amount that they can afford to spend on a car, but that’s not always the case. Your lender will tell you the maximum amount that you are approved to borrow, but this doesn’t mean you should pick the most expensive vehicle that the bank will finance.
Everyone’s financial situation is different. You should analyze your personal finances to determine how much you can afford to spend while still setting aside some money for emergencies.
Some experts advise borrowers to limit monthly car expenses, including loan payments, to 10% of their gross monthly income. After looking at your finances, you may realize that the amount you are comfortable spending is well below the maximum amount you are approved to borrow.
It’s Better to Get An Auto Loan From A Dealer
Borrowers can obtain auto loans from a number of places, including banks, credit unions, and online lenders. Some automotive dealerships also offer financing to their customers. Taking out a loan from the same dealer you purchase your vehicle from might seem easy and convenient, but that doesn’t mean it’s the best option.
Although buying a car and taking out a loan from the same place seems like convenient, one-stop shopping, it could cost you a lot of money over the course of the loan. Online auto loans are just as convenient, but may offer lower interest rates.
All That Matters is the Monthly Payment
Some borrowers think they should focus solely on the monthly payment when choosing which loan is right for them. In other words, these borrowers simply choose the loan that allows them to make the lowest monthly payment possible. The monthly payment is an important factor, but it’s not the only factor you should consider when choosing an auto loan.
You should also consider the annual percentage rate, or APR, and the loan term. The APR is the annual cost of borrowing money every year, which includes interest and other fees associated with the loan. The loan term, which is typically expressed in months, is the amount of time that you have to repay the loan.
Long-term loans often have lower monthly payments, which is why they are so appealing to borrowers. But you may end up paying more in interest over the course of a long-term loan. The opposite is also true. Short-term loans may have higher monthly payments, but will typically cost less in the long-run since you won’t pay as much in interest.
The APR has a major impact on the total cost of the loan, too. The lower the APR, the less you will pay in interest. A minor difference in rates–even if it is as small as one percent–can save you hundreds or thousands of dollars over the course of the loan.
Getting Pre-Qualified Will Hurt Your Credit
There are a lot of misconceptions out there about how getting pre-qualified for an auto loan will impact your credit. If you are preparing to buy a car, it’s important to know the truth behind this myth.
Lenders typically perform what is known as a soft inquiry when checking your credit to see if you pre-qualify for an auto loan. A soft inquiry will not affect your credit score in any way. Most soft inquiries are only visible on your credit report to you, which means other lenders typically can’t see them when checking your credit.
However, the process is different for an auto loan pre-approval. Getting pre-approved is a more formal process than getting pre-qualified. If you apply for pre-approval, the lender will perform a hard inquiry to check your credit. A hard inquiry will impact your credit score and appear on your credit report.
In short, applying for pre-qualification will not impact your credit, but applying for pre-approval will.
You Won’t Get Approved Without Perfect Credit
Your lender will consider many factors when determining your eligibility for an auto loan, including your credit. However, this doesn’t mean you need perfect credit to get approved for an auto loan. You can still get approved even if your credit is less-than-perfect.
Your credit score can affect other loan terms, including your interest rate. Borrowers with high credit scores are typically offered lower interest rates, which means they won’t need to pay as much in interest over the course of their loans.
Before you start shopping for a car, check your credit score. If you’re not satisfied with your score, you can make an effort to improve it over the next few months before you start shopping for a car. Improving your score now could help you secure a better auto loan when you’re ready.
You Need to Make A Huge Down Payment
A down payment is the amount of money you pay upfront toward the purchase of a new or used vehicle. It can come in the form of cash, the value of a trade-in vehicle, or both.
It’s wise to save up so you can make a sizable down payment on your vehicle. The bigger your down payment, the less you will have to borrow to purchase a vehicle. However, it is possible to get an auto loan even if you haven’t saved enough to make a huge down payment.
How much you should pay will depend on how much you can afford. Some experts recommend making a 20% down payment on a new vehicle and a 10% down payment on a used vehicle. But you can still get an auto loan even if you can’t afford to pay that much upfront.
You Can Only Get An Auto Loan to Purchase A New Vehicle
One of the first decisions you need to make is whether you want to purchase a new or used vehicle. You should take many factors into consideration when making this decision, including the price, warranty coverage, and your lifestyle. But you should not worry about how your decision to buy a new or used vehicle will impact your ability to get an auto loan.
It’s true that some lenders only allow borrowers to purchase new vehicles, but many lenders will allow you to purchase either a new or used vehicle with your auto loan. Lenders may include other restrictions in the fine print of the loan agreement, so it is always important to read through your contract before signing.
Auto Loan Pre-Qualification Takes A Long Time
You may have read that the process of getting pre-qualified or pre-approved for an auto loan takes a long time, but that’s the case. It only takes a few minutes to get pre-qualified for an auto loan, especially if you are working with an online lender. In this case, all you need to do is answer a few questions about your monthly income, debts, and the amount you want to borrow. Other lenders may require you to complete the application over the phone or in person, which may take a little longer.
You may need to provide more information to apply for pre-approval, so this process could take a little longer. But ultimately, applying for either pre-approval or pre-qualification for an auto loan is fast and easy.
If you’re ready to purchase a vehicle, find out if you pre-qualify for fast auto loans by filling out the short form on our website.
How to Apply for An Online Auto Loan
Take the first step toward securing the cash you need to purchase a new or used vehicle by applying for an online car loan with LoanCenter. Here’s what to do:
- Get pre-qualified. Find out if you pre-qualify for a car loan by submitting your information about your employment, residence, income, and desired loan on our website. Submitting this information will not affect your credit.
- Customize your loan. Review your options and choose a loan structure that works for you. If you change your mind, you can always go back and select another option before finalizing your loan.
- Add extra features. You can choose to add features such as a GAP Waiver, a vehicle service contract with Powertrain Coverage, or Advantage Coverage to your loan. Adding these features will provide additional protection, but they may also increase the cost of the loan.
- Start shopping for a car. Search through countless vehicles in our inventory to find a car that you can purchase with your auto loan.
- Pick up your vehicle. Download or print your pre-qualification letter and bring it with you to the auto dealer. Present the letter once you arrive so you can drive home in your new vehicle.
That’s all it takes to complete the process of purchasing a new or used vehicle with an online auto loan.