How to Get a Loan That Fits in Your Budget
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Set a Budget
The most important thing to do is know how much you can actually afford. Ignore tactics like long-term loans because you’ll end up paying too much. Ensure you save to put down a reasonable down payment. The larger this is, the smaller and cheaper your loan, the sooner you’re debt-free. Your monthly payments should not exceed 20% of your take home. Ideally, your loan term shouldn’t exceed 36 to 48 months. And your APR should be as low as is possible.
Review Your Credit
Check your credit report before you apply for a loan and ensure you get any mistakes in it corrected before your application. You’ll get a lower interest rate if you have a good credit score, so ensure that you make all your loan and credit card payments on time.
Apply to Multiple Lenders
Before you step into a dealership shop around for a loan with banks, credit unions, and online auto loan lenders. Ideally, get pre-approved for a loan, so you know how much you can borrow. In the end, you can use this preapproval to maybe get a better loan from the dealership.
Recognize the Sales Tactics
Ignore the salesperson’s attempts to get you to focus on low monthly payments. They’ll manipulate it, so you end up paying more. Don’t fall for small down payment suggestions either. Be realistic about what you can afford. Also, skip features and options that aren’t essential for your car.
Skip Unnecessary Insurance
Do not include insurance in the loan amount. Buy it on your own. Liability insurance is the basic coverage required, and you can explore options to buy that. Ignore credit insurance as it’s a low-value add-on, and you can get individual life and disability policies elsewhere. Collision and comprehensive coverage may be required by your lender. Shop around for it.
Avoid Prepayment Penalties
You may get a chance to pay off your loan sooner than the set term. You should be able to take that option if it ever presents itself. But some lenders impose a prepayment penalty that penalizes you if you try to get debt-free early. So examine the fine print carefully. They may also be disguised as payoff fees, rebates, or the rule of 78.
