Buy a new car? 3 things you should know about applying for car loans | Mint – mint | CarTailz

Although some car owners trade vehicles before the last loan is even paid off, others are waiting. Especially in economically uncertain times, people like to hold onto what they have longer. But when it’s time to buy, you should know what buying this car entails.

Vehicles are big investments, so invest wisely. Before you start hiking down the paved corridors or surfing online, be prepared. Here are three things you should know about applying for car loans.

1. You need proof

The price of a new car may not be nearly as high as a new home, but the process is very similar. You will need to prove some claims before the lenders will agree to finance your purchase. So be ready to collect and present your evidence.

Of course, you will need to prove you are who you say you are, usually with your driver’s license. Lenders might also ask for proof of residence, perhaps by showing a recent utility bill. Then they’ll check your debt-to-income ratio, your credit score, and the amount you’re spending on a down payment.

Your debt-to-income ratio tells you how much you can afford to pay monthly. Lenders require income verification to calculate this. You can request pay slips and income tax returns or contact your employer.

They run a tough credit check, which can result in a few points dropping your credit score. But lenders check your score, credit history, and the percentage of credit you’re currently using to assess whether they trust you to make payments. You will only borrow an amount that your finances allow you to handle.

Lenders will be wary of your claims about your income and debt. You can trust that they will ask for proof. You might want to stay ahead of those requirements by gathering everything you need before you start shopping.

2. Not all lenders or loans are created equal

There are different types of lenders and different types of credit. Which one you end up getting can be a matter of choice. Or it can be a question of the type of vehicle you are buying.

Many car buyers finance their new car purchase through the car dealership. The dealership works with one or more lenders. They will collect information from you and then pass it on to their lenders to see which offers the best terms.

Dealer financing offers the convenience of one-stop shopping. However, you may pay higher interest and financing fees for the privilege. It’s a good idea to apply through your bank, credit union, or online lender to save some money.

Some lenders only finance certain car purchases. Some may only finance new or certified used vehicles. And if you’re looking to buy from a private owner, you’ll probably need to speak to your banker.

If you imagine your credit score going down with every tough request from every lender, don’t worry. Credit bureaus don’t weigh down your score when multiple lenders run credit checks within a short period of time. You find out you’re looking for a new car and treat it as one tough request.

3. It costs more to protect your wealth

When you decide to buy a new car, you probably focus on a few key factors. They calculate the cost of the car, the value of your trade-in, and the cash you have for a down payment. Then you calculate how much you need to finance and what it costs in terms of interest and fees.

What you may be missing from all these numbers is the cost of insuring your new vehicle. Chances are it will cost more than you pay to cover your current car. Depending on the value of your new vehicle, it could cost you significantly more.

Most states require car owners to have at least minimum liability insurance if they cause an accident. Liability covers you if you injure someone or damage their vehicle, but it doesn’t cover damage to your vehicle. This requires comprehensive and collision coverage.

Your lender will most likely require you to have indemnity and collision insurance to protect their investment. Your insurance company will determine how much coverage you need based on the value of your new car. If you don’t buy one of less value than your current one, your insurance premium is likely to go up.

If you dropped comp and collision insurance when paying off your current vehicle, these costs could come as a shock. Talk to your insurance agent before you buy so you don’t get caught off guard. When calculating what your new car will cost, don’t forget this item.

Enjoy the ride

The harsh financial reality can dampen the excitement of buying a new car if you’re not prepared. It’s a big purchase. It’s better to do your research before you even start buying.

Remember, these credit-related issues aren’t the only financial implications of buying a new car. Sales tax, title and license transfers, and other fees are not only unavoidable, they hit you at the same time.

Whatever you buy, you should be able to afford it without straining your finances. If you do, the day you receive those keys to your new wheelset will be exciting. You can just get behind the wheel and enjoy the ride.

Disclaimer: This article is a paid publication and has no journalistic/editorial credit from Hindustan Times. Hindustan Times does not endorse/endorse the content(s) of the article/advertisement and/or the view(s) expressed herein. Hindustan Times is in no way responsible and/or liable for anything said in the Article and/or in relation to the View(s), Opinion(s), Announcement(s), Statement(s), Affirmation( en) etc., which are specified/marked therein.

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