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What to Know About Getting an Auto Loan [The Ins and Outs and Stuff In-Between]

Apr 17, 2018 - Posted by: Rocky Mountain Credit Union

 

If it is time to buy a car; it is time to think about an auto loan. You the buyer need to know how much auto loan you can afford. This is directly related to your budget and how much you can afford to pay on a monthly basis. 

Take this time to review your budget and look over the past month or two of receipts. Where can you tighten your belt? Budget big and buy small. This means allow more for the auto loan than you will actually spend. Having some wiggle room means unexpected expenses aren’t such a budget buster. Consider using any extra monthly money to pay extra on the auto loan.
Need some help with a budget? Check out our FREE Budget Worksheet.

Have this information and these recommended documents organized and accessible for auto loan applications 

Organizing all your information before any auto loan applications will save you stress and time. Requirements will vary from one lender to the next but having it all completed will allow you to meet those various requests.

  • Identification such as driver’s license or state id.
  • Proof of residence. Where do you live? A statement from a utility company or some other business type correspondence showing your address.
  • Prove you income by providing W-2s from at least two and possibly three years. Tax returns will be necessary if you are self- employed.
  • A paycheck stub will provide information about your employer and proof of your income. In general this will need to be no more than 30 days old. Some lenders may require several (three months) check stubs. If you have direct deposit allow time to receive assistance from technical support in case there is a glitch downloading and/or printing this information.
  • Lenders are looking for assurances that you have a consistent income. If you are a contractor or freelancing and being paid irregularly you might have to submit a payroll schedule.
  • Some lenders require a letter from your employer. This is used to prove your source of income and the ability to repay the loan.
  • Monthly statements from your financial institution(s). Direct deposits from your employer will show on these statements and so will other sources of income. Social Security payments and other payments from retirement accounts will also be included in this statement.  The lending institution will look at these statements to see your average daily and monthly balance and other ways that you are spending you money.
  • Proof of auto insurance. Having your auto insured is a state law and lenders are sticklers for this as well. 

Applying for a used car loan requires a bit more information

Make, model, year, and identification number (VIN) are standard for an auto loan.  For a used auto loan additional information about the car will be needed. Make sure you have the original title and whether there are any liens on the title.

Know your credit rating

Avoid being surprised during the loan process. Request your credit history in advance so that you can fix any errors. Your credit information is available from all three agencies.  Perform a check once a year. This will not affect your score and is free of charge.

Another advantage to having all of you information together and easily accessible is that you can do all of your loan applications within a two week period. Whenever you apply for a loan your credit is pulled and evaluated by the financial institute. This can have a negative impact on your score. However any inquiries done over a two week period are seen as one inquiry

 

Further Questions to consider about your auto loan.

What amount should I ask for in the loan?

Consider applying for a bit more than you actually plan to spend. This will give you some room to bid or negotiate the auto purchase price.  Depending on your budget, the loan amount may be used for registration, warranties, inspection or other associated fees.

What determines the interest rate of the auto loan?

The lender crunches several factors including, your credit score, length of the auto loan, is the car new or used, amount of the down payment, current lending rates, the purchase price, other information about the auto, and income verification.

What are your monthly payments?

You want to know the amount of the monthly payment and how long these payments will last. Forty eight months is a four year loan, sixty months is a five year loan, and seventy two months is a six year loan.

What is the total interest I will pay over the life of the auto loan?

This corresponds with the question above and ultimately affects how much you actually pay for the automobile.

Is a lump sum due at the end of the loan?

Some loans are constructed this way to lower the monthly payment. A large payment at the end can be an unwelcome surprise. 

Are there penalties for paying off the auto loan early?

Ways to pay off a loan early include making a larger payment each month, making more than one payment a month, or making a large payment on the end. Read the fine print to know your options.

You are ready to make the last auto payment and wondering about the title.

Before the last payment is deducted from your account or before you send off the last payment, find out the total amount due. But, first to reduce the number of phone calls made or other steps contact your Montana county treasurer’s office. You want their mailing address to verify with the auto lender where they will be sending the titling paperwork.

Contact the lender and ask about the payoff balance. It is bound to be different than the monthly payment amount due to interest and other fees. Make sure you understand how many days this balance is valid. Be sure and review the payoff process. Record the name, time, and date with whom you are speaking. The payment has to be processed before the next step of releasing your title. 

Calculate your auto loan rate at RMCU

Check out these sites for more helpful information

http://blog.rmcu.net/rmcu-auto-loan-basics
https://www.rmcu.net/loans/vehicle
https://money.howstuffworks.com/personal-finance/debt-management/apply-for-car-loan4.htm
https://www.consumerfinance.gov/consumer-tools/auto-loans/
https://dojmt.gov/driving/vehicle-title-and-registration/

 

 

 

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