Factors that can help you qualify for car financing
So, you are thinking about buying a car? How exactly do you qualify for car financing? To qualify for a car loan, there are a few factors that must be considered.
- Good credit score. Having a good credit score is a very important factor to consider if you want to get financing for a vehicle. A good FICO score ranges from 670-739. If your score is higher that is even better since dealers may have specials for individuals with higher credit scores. Most auto lenders will use the FICO 8 or FICO Auto Score to determine your score. Lenders tend to have their own factors to determine if you are a good risk or not. If your credit score is in a good range, then there is a good chance the dealer will finance. There are some lenders out there that will work with those who have a lower credit score but might charge a higher interest rate or require a co-signer with established credit. It is recommended if thinking about financing for a car it is a good idea to work on improving your credit score.
- Source of Income. Having a steady income is crucial to all lenders. It shows that you have income coming in and will be able to make your monthly payments. Proof of income can be a recent pay stub. If you are self employed or receiving social security or disability, you can provide bank statements.
- Prove identity and residence. If you are trying to get the car financing from a bank or financial organization that you regularly use, then you may not need to provide this information since you are an existing customer. If you are working with a new lender then you may have to provide a driver’s license with your current address. This is because the lender wants to know where the vehicle will be if payments are not made and the vehicle needs to be repossessed.
- Trying to get pre approve. Lenders can run soft credit checks on customers to review credit reports to determine the chances of getting approved. This can save time and give you a good idea of what lenders will finance you. A soft credit check will not hurt your credit score, so you can contact several lenders to see who will approve you and find the best deal.
- Down Payment. A down payment is cash that you are paying the dealer to help cover the price of the vehicle you want to finance. Having a down payment is always a positive. It shows you are serious about purchasing a vehicle and are less likely to miss payments or default. A down payment will reduce the amount of your loan so it will also reduce your monthly payment and interest.
- Trade in. A trade in is a vehicle that you are offering in exchange for credit towards the new vehicle you are interested in financing. Whatever they give you for the trade in the amount will be deducted from the new vehicle. If you owe more than what the dealer is offering, that is called negative equity. This can sometimes be added to your new vehicle loan, but results in larger monthly payments.