Cruise into a New Vehicle in 8 Steps

  • February 13, 2024
  • Lindsey Mueller, Community Outreach Officer

Before you shift gears and buy a new or new-to-you vehicle, there are multiple factors to consider...

1. Wants vs. Needs vs. Affordability

Before purchasing a vehicle, evaluate what you would like and need for a safe, reliable vehicle. Sure, the bells and whistles make your dream car fun, but are they worth the price tag?

If you are purchasing your new ride with a loan, crunch the numbers and make sure it will fit comfortably into your monthly budget . Be realistic and conservative when thinking about payment options as your financial situation could change at any time during the life of the loan. This is especially true if you are planning any large life changes during the loan term such as adding to your family or moving.

TIP: if you have to forego saving to make the payment fit into your spending plan, you should think twice about your vehicle purchase choice and look for something with a lower price tag.

 

2. Know your financial situation before you apply for a loan.

This goes for all loans or credit cards! During your budgeting process, analyze your income and know your length of employment. You may also be asked for pay stubs or W-2s depending on the loan amount or type.

On that note it's a good idea to check your credit history prior to applying for a loan. For the most part, your credit score will determine your interest rate, but your history is where your financial reputation shines through. If there are items that are easy to rectify or explain such as an error on your credit report, it's best to be prepared for questions from your lender.

In some cases, you may need a cosigner if your credit report has some room to grow. This is especially true for younger borrowers just starting their credit journey. When asking family or friends to be your cosigner, remember that how you handle your loan also impacts their credit history. By being your cosigner, their debt-to-income ratio changes, their score is impacted, and they can be held liable for your loan if you fail to pay.

 

3. When buying a new vehicle, be prepared to shop for cars AND rates.

As you are researching vehicles to purchase, don't forget to shop and compare rates! People with a higher credit score typically get lower interest rates. If your credit score is suffering or new, you may have a higher interest rate, need a cosigner, or be requested to provide a larger down payment to get funding.

 

4. Skip the guesswork and get pre-approval BEFORE you select a vehicle.

Pre-approval can save you time and prevent disappointment. By getting pre-approved, you gain a better idea of your spending power. After you have rate shopped, contact your chosen lender to apply for preapproval and get your possible price range. Once you find the car that meets your needs, call your lender with the VIN, make, model, and special features to see if it's value and price meet your loan terms.

If you want to skip the pre-approval processes, that's fine too! You can ask for your preferred lender at the dealership.

TIP: Be prepared to put more money down if the vehicle, taxes, and fees cost more than what was approved in your application.

 

5. Research your vehicle's value before signing a purchase contract.

This goes for both your old and new vehicles if you plan on trading at a dealership. Your car's age, model, mileage, and wear can factor into the overall value.

Some modified vehicles with add-ons made by a previous owner may not increase the collateral's value. If this is the case, you may need to put more money down if the purchase price is higher than the value.

6. Put money down, even if you don't HAVE to.

Depending on your credit history and other factors, you may not be required to provide a down payment. If that's your situation, it's still best to put money down on the loan as long as it fits comfortably within your budget. This gives you the power to get a shorter loan term, smaller monthly payments, or both.

TIP: Don't completely empty your savings to make a larger down payment than needed. You may need that money further down the road for repairs, maintenance, or general emergencies.

 

7. Understand your collateral responsibilities.

A vehicle loan is considered a "secured loan." This means that your loan is less risky, as it's supported with a lien on your new vehicle. If you would default on the loan, your car could be repossessed. Once your loan is paid off, the lien is released, and you have what is referred to as a "clean and clear" title. For more information, look closely at your loan documents before signing.

TIP: Ask your lender what type of insurance is required for the vehicle during the life of the loan.

 

8. Be thorough when you read the loan paperwork.

If there is something in the documents that you don't understand or agree with, say something BEFORE you sign. Once you do, you are legally held liable for the loan amount.

TIP: If you are interested in any form of loan protection, try to ask before the loan documents are drawn. Even though it may increase your monthly payment, it could protect your investment in your vehicle. For more information, talk to your lender.