#2. Steps to Buying a Car: Financing – Continued
We left off on the previous page about your credit score and interest rate. When you get a car loan the bank or lender will determine your interest rate on a tier system. The the higher your credit score the lower the interest rate. In order to better illustrate how this system of rates and tiers works see the diagram.
As you can see your credit score will determine your interest rate. Keep in mind that this is just an example of the National Average on 12-11-2009, these can also be slightly different in different states and areas. These rates can change daily, so research on the steps of buying a car is important at the time that you plan on purchasing.
The next thing that you need to consider is how much down payment will be required on your car loan. This will also be determined by your credit score.
LTV and Advance – Steps to Buying a Car
There is another issue when it comes to financing a car and that is the LTV (loan-to-value) or advance. This is important when you are financing a new car because it determines how much the lender will let you borrow. The loan to value means the amount of the loan to the value of the secured item (your new car). Each lender has a way of determining how much they will lend you based on your credit score.
For example; if your credit score is 800 then the lender may be willing to lend or “advance” 135%. This 135% may be based on the dealer’s invoice. So that means that the lender will allow 135%, that is 35% over the cost of the car. That would allow you to buy the car with no down payment and include the taxes and fees. However, if you had a much lower credit score the lender may only advance 90%. That means you would need a down payment that would include 10% of the car purchase plus all your taxes and fees. As you can see there is more involved in the steps to buying a car than meets the eye.
Different lenders have different rules when it comes to how much they will advance for your new car loan. There is not any hard and fast rule it depends on the lender and your credit, but I have seen advances go anywhere from 140% down to 50%. The best thing to do to protect yourself is to get a Free Car Loan Quote from 4 different lenders just Click Here..No Obligation and then you can choose the best car loan for YOU!
Critical to the Steps of Buying a Car
So when it comes to the steps to buying a car you can see how critical it is to know your credit score. I can’t stress this enough when buying a car that you should get your Equifax 3-in-1 Credit Report NOW! The easiest way to become the victim of a car dealer scam is to not know your credit score. Knowing exactly what your credit is can potentially save you thousands of dollars of the term of your car loan. I have seen new car buying customers pay and extra 25 to 85 dollars a month because they did not know what their credit report looked like or their credit score.
Protect yourself in the steps to buying a car by getting your Equifax 3-in-1 Credit Report NOW! (opens in a new window so you won’t leave this page) Save yourself from one of the easiest car dealer financing scams.
Now that you know what your credit score is select a rate and term for your car loan. Plug them into the Auto Loan Calculator below to give you an approximate idea of what your payment would be based on your credit score, term of auto loan and amount financed. This step of the steps to buying a car will give you a very close idea of your monthly payment. However there are some things that need to be included in your auto loan calculations. There will be sales tax, license, title and documentation fee. These will change based on your state and county. The sales tax and license will be based on where you reside, not where you purchase your new car.
Steps to Buying a Car – Go Here for our Car Payments Calculator
At this point you should be able to determine your budget for buying a new car. You should have established the maximum amount you want to spend on your new car, your down payment, monthly payment and your approximate interest rate along with the term of your auto loan. Write down all these amounts on a sheet of paper. When you get to the car dealer the car salesmen have a way of clouding your judgment and getting emotionally involved. When that happens your car buying math can go out the window and you end up regretting your purchase later. Let’s move on now to the next steps to buying a car.
Before you go to the car dealer you should get some FREE Warranty Quotes so you will know exactly how much a new car extended warranty will cost you. Click here and get the FREE Quotes at Smart Warranty so you will know exactly how much the dealer is trying to make off of you.