You’ve had your eye on that new car for months now. You’ve done your research and you know exactly which make, model, and features you want. The only thing left to do is take the plunge and finance it. But how do you know when you’re really ready to finance a car? Keep reading for six signs that you’re prepared to take on a car loan.
You have a down payment saved up.
One of the first things any dealership will ask you is how much money you have for a down payment. A down payment is the lump sum of cash that you put towards the purchase of your vehicle upfront. The more money you have for a down payment, the lower your monthly payments will be. Most dealerships require at least 10% of the total cost of the vehicle as a down payment, but 20% is even better. If you doesn’t have at least 10% saved up yet, hold off on financing until you do.
Your credit score is in good shape.
Your credit score is one of the most important factors that lenders will consider when approving your loan. A high credit score means you’re a low-risk borrower, which means you’ll likely be approved for a loan with a low interest rate. A low credit score could lead to a higher interest rate, which will end up costing you more money in the long run. If your credit score isn’t where it needs to be yet, work on building it up before applying for a loan.
You have steady income.
Lenders want to see that you have a steady income so they know that you’ll be able to make your monthly payments on time. If you’re self-employed or your income varies month-to-month, get tax returns or pay slips from the last few months to show lenders that you have stable income coming in regularly. Many lenders are able to provide car loans for those in casual employment.
You have employment stability.
In addition to having steady income, lenders also want to see that you have stability in your job situation. If you just started a new job or are in between jobs, wait until you’ve been employed at your current job for at least six months before applying for a loan.
You understand all the costs involved.
When financing a car, it’s important to remember that there are more than just monthly payments involved. There are also other costs such as insurance, gas, maintenance, and repairs that need to be taken into account when budgeting for your new vehicle. Make sure that these additional costs won’t cause financial strain before deciding to finance a car .
You have a plan for what you’ll do if something goes wrong.
No one ever wants to think about what they would do if they lost their job or got into an accident and couldn’t work, but it’s important to have a plan in place just in case something does happen and you can no longer make your monthly payments. Talk to your lender about their options for deferring payments or refinancing if needed so that you know what steps to take if something unexpected comes up.
When it comes time to finance a car, there are several things that need to be taken into consideration first. By taking the time to save up for a down payment, understand all of the costs involved, and build up your credit score, you can put yourself in a much better position when it comes time to sign on the dotted line.