There is no reason to feel alone when considering applying for a loan at your Credit Union: Almost three out of four cars purchased today require financing to complete the transaction. While your Credit Union will help make the application process quick and easy for you, there are steps you can take to help yourself before visiting with a loan officer.
1. Determine your financial situation
Part of the loan officer’s role is to verify that you can repay the loan. So, it makes sense that you know before you apply just how much you can spend on monthly payments. You don't want to get stuck making too many sacrifices in your life for a car that’s just too expensive.
So how do you figure out how much you can afford? First, you need a monthly budget, which begins by adding up all of your fixed monthly expenses, such as your rent/mortgage, phone, electric and other recurring monthly bills, and any existing loans and credit card payments. Next, subtract that from your take-home pay. Then subtract your estimated additional expenses as for food, gas, entertainment, and whatever else is not a set monthly expense for you. What is left over, is likely the amount you have left that can be spent on a car loan.
Make certain that you include in your budget the extra costs associated with owning a car. That is, gas, insurance, licensing, registration and maintenance.
2. Your Loan compared to what you can afford
Now that you’ve determined what you can afford, let’s take a look at how much of loan you might receive so you won’t have any surprises. The loan officer will calculate your take-home pay. A good rule of thumb is that the maximum monthly payment you’ll be approved for as a loan is 20% of your take-home pay. The loan officer will also consider your expenses to determine how much of a loan you can afford. So, identifying your monthly budget before you apply for your loan helps you understand how much you can afford, and whether the loan you are offered is affordable for you.
3. Decide what you should drive
Now that you have an understanding of how much you can afford, you can now consider which vehicles fit into your price range. Your choice of vehicle is mostly a personal choice, but knowing your needs provides a great guideline for you when making a selection. It is also helpful to know the difference between your needs and your wish list.
Do you have a young family that requires an affordable, safe and reliable minivan or station wagon? Do you need a commuter car with superior gas mileage? Will you use the vehicle on the job for hauling or delivery?
Also consider your wish list, which may contain features such as a soft top and bass-boost stereo. Compact cars get really good gas mileage and many come as a convertible model. Do you plan on taking road trips and prefer a comfortable ride and a great stereo? Are you thinking adventure? All these wants can lead to vehicle choices both practical and expensive. Let your needs be the guide, and your calculated budget to help with some wants.
Once you've narrowed your choices down to a couple of vehicles, it's time to do some car research.
4. Do your homework
Use the CarQuotes.com Research Tools to consider makes, models, prices and evaluations. Read up on the cars that interest you. When you have a few models in mind, it’s time to get specific.
Using CarQuotes.com, build each of the models you selected. Choose the color, trim packages and options you want. CarQuotes.com even allows you to compare models side by side. When all your selections are complete, take a moment to appreciate your good taste—but not too long.
Now, the reality test. Take a good hard look at the price. Can you really afford the car you are pricing out? Consider any incentives or rebates offered. And remember, you will have to pay sales tax and license fees, plus insurance, gas and regular maintenance costs.
5. The Down payment
Your Credit Union may or may not require you to have a down-payment on your car. Generally, if you can lower the amount to need to finance by applying a down payment as part of your purchase agreement, you’ll save money in the long-run. It may not be an easy choice to spend your hard-earned savings for a down payment, but if you do, you’re monthly payments will be lower.
Remember too that rebates and trade-ins help lower the purchase price as well. A trade-in will also lower your tax liability on the purchase.
Narrow your choices down to one or two models, and obtain a CarQuotes Vehicle Pricing Report for each one. Then contact your Credit Union to arrange for financing.