Financing Your Next Auto Purchase

Unless you have the cash to make your next auto purchase, it is most likely that you will have to finance it. When financing, there are several options available to you depending on your credit score, the amount you need to finance and even the type and amount of miles on the vehicle.

Looking at your financing before auto shopping may help you determine how much you can afford. Many dealerships deal directly with lending institutions and can help you pre-arrange financial approval. With preapproval you will have knowledge as to what your monthly payments will be, your interest rate, and repayment terms. The advantage of a direct loan is that you have already been approved for automobile financing and know the maximum amount of your loan plus repayment terms. The disadvantage is that you may not be able to take advantage of special automobile financing offers by the dealer.

So how do you qualify for the most credit before applying? A lending institute will look at many things to qualify you for a purchase. The first thing looked at will be your credit report. Within your credit report is all information regarding your past and current loans along with your other debts. Credit reports include your payment history - whether you paid for things on time or late. Your credit report will show how many loans you have taken out, how many you repaid in full, how much credit you have with other creditors as well as how much credit you have already used. All of these factors will provide the lender with a credit score. Your credit score will then determine not only how much you can borrow but at what interest rate. The lower your score, the less amount of money you can borrow and the higher the interest rate. The higher your credit score, the more you can borrow and at a better rate.

If you discover that your credit score is poor and you are unable to borrow at a decent rate, you can add a co-signer to your loan. A co-signer will be equally liable for the entire loan amount. Essentially, if you fail to repay the automobile loan as agreed, responsibility for repayment will then be that of the co-signer. Because of this, co-signers are typically family members or somebody who trusts you.

What are the other factors lenders look at beyond your credit score? Your income level is of great importance to lenders. Lenders want to evaluate your capacity to repay your loan and make your monthly payments. Your income is then compared to your expenses. The lender will ask you if you own or rent your home, what your payments are, what your bills add up to, and how much you have saved. You can do this ahead of time to better determine what you can afford each month. Add up all of your fixed monthly expenses such as rent, mortgage, utilities, credit card fees, etc. Subtract from that your net income. Then subtract out other expenses such as food, gas, entertainment and such. The result is the amount of money you have to play with. A good rule of thumb is that you can spend 20 percent of your net income for a car payment.

The next thing to remember when borrowing money is that you are not just borrowing the amount of money for the cost of the car. There are other fees as well that include licensing, registration and taxes. Second, the true cost of owning a vehicle is more than your monthly payment. Remember that you still have to pay for the vehicle's insurance, gas and maintenance.

Once you have determined what you can afford, you can now go out and buy that car you have been dreaming of.

Greg Chapman of Greg Chapman Motors is a knowledgable and leading provider of used cars, trucks, and SUV’s. Since 1959, Chapman motors has supplied reliable used car Austin and the surrounding area. For more information please visit http://www.gregchapmanmotors.com.