There are few things as thrilling as driving a new vehicle off the lot. However, if you don't do your homework ahead of time, that honeymoon feeling with your new ride will wear off, as the monthly payments tear into your budget making it difficult for you to keep up with bills. To prevent this from occurring, here are some questions you should consider before doing an auto loan.
Am I a Good Candidate?
Lenders tend to be more flexible with auto loans because they understand your need to drive. This means even with a less than perfect credit score, you might be able to secure a loan. With this in mind, if you do have a lower credit score you'll likely qualify for a subprime loan, which means you'll pay a high interest rate. This will increase your monthly payments and likely mean you'll finance much more than the car is worth.
Therefore, before going to your local bank or credit union, you should examine your credit reports thoroughly and settle old collection accounts first. Feel free to reach out to the lender or collection company handling the account and reach a repayment agreement. In most instances, they are willing to be flexible if you show the intention to repay. Once you clear up these accounts, your credit score will improve making you a better candidate for a loan.
Can I Afford the Loan?
One of the worst feelings you can have is knowing you overpaid for your new vehicle. This can create a stressful situation, as the high monthly payments make it difficult for you to manage your finances. To assist you with this, you should set financial goals you hope to accomplish such as saving a specific amount or paying off debt. Once you set up action steps for your goals analyze whether you can afford the costs associated with owning a vehicle such as its monthly payment, insurance, repairs and fees. More importantly, can you comfortably make the payment while continuing to achieve your financial goals? If you cannot, then it's likely you won't be able to afford the loan. In turn, you should either hold off on financing a newer vehicle or find one that better matches your situation.
Is This Loan a Need or a Want?
It's understandable that over time you might become bored with the vehicle you drive and you have the temptation to trade it in. However, before you go with this approach you should examine your finances and how a newer vehicle will impact it. It's one thing if you continually have to pour money into a car for repairs. It's another if you want a newer car because it has all the bells and whistles. Vehicles are not impulse purchases; therefore, you need to take emotion out of the decision. If it's a practical buy then by all means do it, but if it's just to freshen things up, you are just going to tax your finances for cosmetic reasons.