Once you have determined it is time for a new set of wheels, deciding how to pay for the new wheels is the next important step. Today, with tons of financing options, it can be difficult to narrow down choices but checking out your bank is a great place to start.
Before the Bank
Buying a new car is an exciting venture and it is tempting to head straight to the dealership or private seller and start test driving. If you want to make sure you are getting the best deal and streamlining your car buying process, you will want to secure your financing options before you head to the dealership.
Before you contact your bank to set up the financing, you need to do a couple of things to make sure that you are prepared for your monthly payments. First, you should check your credit score so that you can be informed about your credit range and what rates you can expect. You also need to do a quick budget scrub to figure out what monthly payments are feasible taking into consideration any downpayment you plan to make. If you are looking for a shortcut to figure out how much car you can afford, a quick internet search will provide tons of websites that will do the calculations for you.
Once you have determined what your budget is and what kind of annual percentage rates or APR to expect, it is time to head to the bank to get a loan.
Bank Financing
Most banks offer in-person applications and online applications for people interested in financing a car and they will offer to finance cars purchased from a dealership or a private seller. The in-person and online application processes are very similar and require the same information. The applicant can decide which method is more comfortable for them.
Online applications do require entering sensitive personal data online. Though bank websites are secure and encrypted, online applications should not be completed on a shared public computer. If using a public computer is all that you have available, head into your local branch to complete the paperwork.
No matter whether you go online or in person, you need to be prepared to provide proof of identification, contact information, proof of income, and social security number. The bank asks for this information so that they can run a credit check to determine your credit score and see if you have any non-payment marks on your record.
Some lenders won’t ask for your proof of income and will take you at your word. It truly just depends on what your credit score reveals and your history with the bank.
Well-established banks like Bank of America can have a loan decision back to you within minutes of applying. The first thing that they will tell you is the full amount you are allowed to borrow. Just because they will loan you that much does not mean it is in your best interest to take every penny. This is why you should do a budget analysis first. Only you know what you can truly afford.
The bank will provide you a maximum loan amount, your annual percentage rate, estimated monthly payment, and timeline for repayment before you ever step foot in the dealership or meet with the private seller. You will also walk away from the bank with a pre-approval letter that you can take to the seller to let them know you are a serious buyer.
With the Seller:
If you are buying from a private seller, you already probably have a solid idea about what the car costs (minus any negotiations). Private sellers do not assess tax and title costs. Also, there are no upgrades or packages that can be added which is a perk for making sure you stay within your budget. You will be responsible for completing the paperwork with your bank and finalizing the sale in private seller situations.
A vast majority of this finalization can be completed online and over the phone.
At a dealership, you can test-drive many different cars and see what car best suits your needs. Because you are already pre-approved through your bank, you can try many different cars at many different dealerships to try and find the best deal. Dealerships do not only incentivize their car purchases with lower costs, dealerships can also offer things like free routine maintenance, windshield repair, etc as a way to make their dealership the one that you pick.
The price on the sticker at the dealership is negotiable and does not take into consideration taxes and titling costs either. Dealerships expect negotiations so don’t be afraid to offer them less than what they are asking. The dealership will likely also offer you dealer financing to try and get you a better deal.
There is nothing wrong with having them get you an estimate, also, as long as it is within a 14-day window from your loan application at the bank. Each time you allow a lender to run a credit check, it dings your credit score 5-10 points except in the case of loans taking place during a 14-day window. The 3 major credit bureaus consider all pulls in a 14-day window as one pull to encourage you to shop around for the best rates.
Once you decide on a car and your financing, the dealership should take it from there. You will provide the finance manager the pre-approval letter from your bank and they will take the necessary steps to finalize the sale.
There will likely be a pretty long wait while the finance manager and sales manager prepare the paperwork on their end. They will have you sign a large stack of paperwork closing the sale and completing all the paperwork the bank requires to finance your loan.
After the Sale
After the sale is finalized, your bank may send you a coupon book with tear-out slips to return with payment or you can set up online payment. Unless something was not completed correctly, once the sale is finalized, your only responsibility is to make sure that your bill is paid on time.