Who gives out vehicle loans?
In general, there are two ways to borrow money to buy a car: direct lending and dealer finance.
- Lending without intermediaries — Banks, credit unions, and other financial institutions, such as online lenders, are examples of direct lenders. Borrowing from one of these lenders allows you to comparison shop for the best loan conditions for you, and you may be able to get preapproved for a specific loan before you browse. When you’re ready to buy, you’ll utilize this loan to cover the cost of the vehicle.
- Dealership financing – This option, handled by your dealer’s finance department, allows you to shop for your vehicle and auto loan in the same location. Dealers typically have links with numerous lenders, allowing you to compare conditions and maybe qualify for a manufacturer-sponsored low rate or incentive programs. However, be wary of “buy here, pay here” dealerships that provide high-interest in-house vehicle loans to buyers with poor credit.
If you don’t want to take out a standard auto loan or don’t qualify for one, consider asking a family member for assistance or waiting until you’ve saved enough money. You could also consider an alternative loan, such as a personal loan from a peer-to-peer lender.
Requirements for obtaining a car loan
To get a car loan, you’ll usually need to fill out a loan application that includes details about your financial condition. To make the procedure run as smoothly as possible, you’ll generally need the following information on hand:
- Number of Social Security
- Current and previous addresses
- Information on current and previous employment
- Total income and sources of income
Details on any other debts you may have
The approval procedure generally includes a credit check and may begin with a prequalification. This may result in a soft draw of your credit, which means it will not affect your credit ratings. If you are preapproved and proceed with a full application, the lender will normally run a hard inquiry on your credit, which might result in a drop in your credit ratings. Even though you have been prequalified, your loan conditions and approval may alter when you complete a full application. However, as long as you complete all of your loan comparison shopping in a short period, there will be little effect on your credit.
Can someone else take over a car loan if something goes wrong?
The quick answer is: most likely not in an official position, although it’s worth verifying with your lender. If your lender authorizes it, the individual assuming the loan will most likely have to go through the loan application process, including a credit check. That means they’ll probably wind up with a new loan rather than taking over your old one.
What’s the point of all this extra paperwork? First, the lender wants to ensure that whoever accepts the loan will pay it back. Also, keep in mind that if your lender enables you to do this, the car is no longer yours.
Perhaps you might persuade a generous family member or friend to cover the payments temporarily until you can repay them. However, keep in mind that late payments may result in the repossession of your vehicle. And most importantly, the loan would still be in your name, which means the default would be yours as well.
If you’ve fallen behind, here are some alternatives to defaulting on your payments.
- Speak with your lender. You may be able to request an extension on your due date, as well as a payment extension or deferral.
- See if you can come up with a payment plan.
- Refinance the loan at a reduced interest rate if possible.
Steps to follow
Before applying for an auto loan, it’s a good idea to check your credit score and monthly budget to see if you can afford a monthly car payment. If your credit isn’t fantastic, you might want to apply with a co-signer or look into lenders who work with low-credit consumers.
Consider how much you can afford for a down payment and whether you want to trade-in a vehicle to assist reduce the total cost of the loan. And, if you’re thinking about getting service contracts, credit insurance, or extended warranties, look into how they’ll affect the total cost of your loan.
If you decide to take out a loan, make sure all of the documentation is correctly signed before driving away in your new automobile and make sure you make all of your payments on schedule.
