5 Things You Need to Know About Auto Financing:

Finding the right vehicle to meet your needs is important but a critical aspect of the auto buying transaction is the financing of the vehicle. Here are some tips to help you with the process.

  1. Prior to applying for a loan, know your credit standing. From a lenders perspective the greater the loan risk the higher the interest rate and the higher the monthly payment. Today consumers have many choices for loans: banks, finance companies, credit unions, and even financing from the dealership (Buy Here Pay Here). Credit Reporting Agencies often apply a score to their credit records and lenders use this score as one of the factors in determining eligibility for their programs. The major credit reporting agencies provide consumers with one free annual credit report. You can access this service online at AnnualCreditReport.com. Once you know what the lenders will see on your report, you will better understand the loans rates you may quality for on your vehicle purchase. If you see mistakes on your report, contact the credit reporting company and learn how to file a dispute.
  2. How much can you afford? First calculate your current monthly debt. Add up your mortgage or rent payment to your current monthly payments for credit cards, loans and other recurring obligations. Once you have that total take your debt and divide it by your monthly income. For example if you have income of $4000 a month and debts of $1500 your debt ratio is 38%. Most lenders look for loan applicants to have a debt ratio around 40% or less. If your ratio is higher it could impact the interest rate you pay for your automobile loan.
  3. Where will you get your loan? There are many options available to obtain a loan and you need to understand all of your options. As we said above your credit standing will impact your loan rates, but now you need to select a source to originate your loan. Auto dealers act as agents for many banks and finance companies and are able to arrange loans for their customers. You can also visit your local bank branch or credit union to see what programs they have available. There are also independent loan services that work with a multitude of lenders and finance companies. They have the advantage of not being tied to the vehicle purchase so they can focus solely on getting each customer the best loan rates and terms available. IFS is one of these companies and they allow customers to apply online or over the phone.
  4. Determine the amount of money or trade-in equity you can apply to the transaction. The more money you can put down the better off you are. Not only will you lower your monthly payments but a larger down payment means less risk for the lender and you might get better terms and rates. You should plan on at least paying all the sales tax on the purchase if possible. If you are not in a position to put up a down payment some lenders like IFS can often help you finance 100% of the purchase price.
  5. What's included in the loan? Not all loan terms are the same. Ask about the days to first payment as this could help you put off the first payment for a month or more. Does the lender provide or offer GAP Coverage. This protects you in the event of a total loss when insurance companies payoff the book value of the vehicle but you owe the bank thousands more for the loan. This program pays the GAP between actual value and loan payoff. Most major lenders will be able to offer your GAP coverage for your loan. Does your lender offer you the ability to include all the fees in the loan? This is a great benefit when cash is tight and helps you obtain the vehicle you want and still work within your budget.

Arranging the right loan can be daunting. If you have any questions on the loan process from any lender, feel free to call one of our IFS Loan Advisors and they will be happy to help you answer any questions about the loan application and fulfillment process. You can reach them at 1-800-504-3748.