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Basic Car Loan Requirements

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Your car loan application will consist of a number of things before you get approved to own your dream car. Knowing and preparing them in advance can help you undergo the quickest and simplest process there is.

Credit Rating

Whenever you are looking to borrow money or apply for any type of credit, the lender will first look into your credit score. Your credit history pretty much says what type of borrower you are and how risky it will be for the lender to give you a loan.

Not only does your credit score determine if you will qualify for a loan or not, but it will also dictate what kind of deal you are likely to get. It’s always a good idea to check your credit report first before heading over to the bank or another institution for loan application.

Down payment

Down payment is not always required if you’re leasing the vehicle, but you will most probably need to prepare a considerable sum if you want to buy a car. Typically, the lower your credit score and the more expensive the car is, the more down payment you will need.

A huge down payment may actually be quite beneficial because it can shorten the duration or lower your monthly payments. However, you should think carefully if you can afford it or if it will leave you with nothing on your emergency fund.

Guarantor

It is not always necessary to have a guarantor, except if you’re a minor or have poor credit rating to qualify for a car loan. What would better your chances of approval is having someone, such as a relative or friend with good credit history to cosign your application.

Proof of Income

Your income is another important component of your loan application. No sane lender will let you borrow without sufficient proof that you are earning enough to pay them back. There are actually some companies who would lend you even if you have bad credit, and in this case your income becomes even more important because they will only base your capacity to pay on it.

Proof of income

Insurance is always a requirement before you can take out a loan for your new vehicle. You can either arrange for the dealership to purchase insurance for you, or you can do it on your own, which is oftentimes cheaper.

Collateral

For starters, collateral is not always a requirement when you’re seeking for a loan. However, like a guarantor, it can increase your chances of being qualified because it limits the lender’s risk.

If you don’t have an impressive credit score though, the bank or credit union may require you to provide collateral, which can be in the form of your home or another valuable asset. It can be very risky, especially if you had a history of delayed payments. You should really think twice before agreeing to put down collateral unless you have learned from your past mistakes and have a better grip on your finances.

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