5 Signs That Indicate You’re Ready to Apply for Your First Car Loan
With various car loan products offered by numerous banks and other lenders, applying for this type of financing to own your first set of wheels is certainly much easier. Applying for one or several car loans, though, is different from getting and repaying one.
To be 100% sure that your application for a car loan will be approved and that you won’t encounter any financial difficulties repaying it, you need to know that you are ready to apply for this particular type of financing solution.
If you possess the five attributes below, you can be certain that you are ready to apply for your first car loan:
1. You have a good credit score
Your credit score will be one of the most important factors that will determine the outcome of your car loan application.
For starters, if your credit history isn’t stellar, there is a high chance that your application for your first car loan won’t be approved. Additionally, if your credit score is low, a high-interest rate will accompany your loan. This means that you will pay more than you should for your loan.
On the other hand, if your credit rating is currently high, you will have a better chance of getting a car loan with lower interest rates.
As such, before starting your application, check your credit score first. You can do this by using an online credit score calculator or an app. If it is currently low, look for tips or ask a loan specialist for advice on how you can improve your credit score. This means deferring your application until you are able to improve your score.
2. You have a stable source of income
Getting a car loan while you have plans of resigning from your current job or closing your business within a few months or so is not a good idea.
Your application may still be approved and you can still afford repaying the loan for the next several months. But if you can’t find a new job quickly or a new source of income, you will also encounter a lot of problems with subsequent loan repayments.
It is, therefore, important that you are certain you have a steady source of income before you even think of applying for a car loan. This will allow you to meet monthly payments without the need to borrow money from your friends or family, or take out another loan that will simply push you deep into debt further.
3. You have a budget
Although you have a steady job or your business is currently profitable, if you’re not earning much or your monthly income is just enough to cover your regular expenses, you may have to defer your plans of applying for a car loan.
Getting a car loan now when money is tight will only land you in a debt trap.
To know if you can afford to repay your planned loan every month with your current income, and to avoid owning an expensive car that will leave you broke, use an online car loan calculator. This tool will help determine the loan amount you will be comfortable paying for every month; one that will work within your budget.
4. You have a cash cushion
Having an emergency fund saved in your bank is also a good sign that you are ready to apply for your first car loan. With this cash cushion, you will be sure you will have money to use to pay for your loan in case you suddenly lose your job or primary source of income.
This additional source of funds will also help you greatly in case you have a car-related emergency in the future. In addition, if you need to use the money you set aside for your monthly loan payment for another unexpected expense, you can dip into this cash cushion for the replacement or additional fee.
5. You have the time to complete all requirements
Finally, if you’re in the middle of a huge project right now or simply have so many things to do in the office and at home, it may not be the right time to apply for a car loan.
Applying for a car loan can be time-consuming. You need to know about the different loan products and car models. Although you can do research online, you need to visit various dealers, banks, and lending agencies to get the best deal.
You will also need to complete and submit various documents to support your application. Since you need to devote a lot of time and effort to finding the ideal car loan, the best vehicle, and ensuring your application will be approved, it is best to apply for car financing if you are not too busy.
Buying your first home and your first car are exciting milestones that you certainly will look forward to. Although it is easier now to buy your first car with the help of a loan, make sure you are ready for all the work that comes with getting your funds and with repaying the loan.
AUTHOR BIO
Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.