What to Look For When Choosing the Best Car Loan Companies: A Guide

By a show of hands, who has $41,000 in the bank?

As you can see, all hands are down! If you’re anything like the vast majority of people, you’re not in a position to buy a car in cash.

However, just because you can’t splurge cash money on a car doesn’t mean you can’t own one. With the help of car loans, car ownership is now available to the masses. Car loan companies aren’t created equal, though.

Continue reading to learn how to choose the best car loan companies.

Establish How Much Car Loan You Need

The first step to finding the best car loan company for your needs is to get a clear picture of the amount of money you need to borrow. Of course, unlike other types of loans, a car loan doesn’t result in the disbursement of money to your account. Most car loan companies will make a payment to the car dealership, after which the car will be handed over to you.

This doesn’t mean you shouldn’t take time to figure out how much money to borrow. You need to buy a car that’s within your financial means.

The big question is: how do you determine how much you can afford?

Conventional financial advice tells us that we should spend no more than 10 percent of our monthly income on car loan payments. This is to say, if you’re earning $4,000 after taxes, your monthly car loan payment shouldn’t exceed $4,00.

Also, you have to look at your other primary expenses. If your net pay is stretched thin because you have other expenses such as a mortgage, credit cards, and student loans, you may not be in a position to afford a car even if you have more than $400 left.

If you have a personal financial advisor, they’ll be able to advise you on what you can reasonably spend on a car loan. There are also online car loan calculators you can use.

Do You Want a New Car or a Used Car?

Knowing whether you want a new car or a used car is key to choosing the best car loan company. This is because some of these companies only make loans to people who are buying new cars. Others make loans to people regardless of whether the car is new or used.

If you’re buying a used car, one of the first questions you should ask a car loan company is whether they offer loans to used car buyers. If they don’t, you shouldn’t waste your time any further dealing with the company.

Should you buy a new car or a used car? It all depends on your financial ability. Given the choice, we would also choose to buy a new car, but since new cars are more expensive than used cars, most people find it easier to afford used cars.

Know the Different Types of Car Loan Companies

There are different types of companies that offer car loans. Banks and credit unions are the most common, but there are car dealerships and private financial companies that also offer car loans.

Different types of car loan companies have different requirements. As such, it’s your job to research these requirements and find the most suitable lender for your needs.

Banks are the primary car loan lenders, but they’re known to have high qualifications standards. If your credit score doesn’t meet a bank’s requirements or your income history is shaky, there’s a high chance your application will be rejected. Credit unions have more lenient requirements, but most require you to obtain membership and build a savings history in order to be eligible for a car loan.

Dealerships and online lenders, like Plenti, have friendlier requirements. They might not be interested in your credit status, for example. Loan terms can also be customized to meet your needs. A Plenti car loan can have a custom interest rate and loan term, depending on your needs.

Get Pre-Qualification

After identifying a couple of car loan companies you’d potentially approach, the next step is to apply for pre-qualification. This enables the lender to look at your documentation and offer a decision on whether you can qualify for their loan.

Getting pre-qualified is a good thing, but don’t rush to work with the first lender that pre-qualifies you.

Compare Loan Terms

You want to get the best car loan deal, right? Your goal should be to hunt for the lowest interest rate and possibly a longer loan term. Longer-term loans are more expensive than shorter-term loans (as long as the interest rate is similar) but your monthly repayments will be lower.

As such, compare loan terms offered by the various lenders on your shortlist and pick one with the best terms. Keep in mind that you can negotiate, so don’t shy away from reaching out to a lender and asking them to lower their interest rate.

Besides loan terms, you also want to consider the overall customer experience offered by a lender. Take note of how its loan officers communicate to you. If customer service is anything but friendly, you may want to look elsewhere.

Work With the Best Car Loan Companies

Getting a car loan is a smart move. You’ll enjoy the benefits of car ownership without worrying about the financial burden that comes with paying for a car in cash. However, it’s in your best interest to work with the best car loan companies.

With the advice fleshed out in this article, you’re now on your way to finding the best lender. Keep tabs on our blog for more car buying and ownership advice.