What to Bring When Buying a Car
Having all your paperwork ready can help expedite the lengthy dealership car sales process, as buyers of new cars spend an average of 3.6 hours finalizing these transactions.
Some examples of potentially time-consuming activities include negotiating the purchase price, checking vehicle history reports, trading in your old car, interpreting current lemon laws, and working on your car loan terms and financing details.
Your Driver’s License
Sellers require a valid driver’s license for identification and for test driving new vehicles. Remember to check that your driver’s license is not expired.
Credit Score and History
If you intend to finance a vehicle or similar large purchase, obtaining a recent copy of your credit report is always encouraged. The three major credit bureaus, Equifax, Experian, and Transunion, each provide consumers one free copy of the report annually.
Reviewing your credit report in advance is important for accurately determining your credit status and for detecting any potential errors that exist which might be hindering your credit score.
If the dealership will be exploring financing options, the institution issuing the loan will definitely review your credit report or score independently after you grant them permission.
Proof of Insurance
You will need to prove you have auto insurance coverage. If unable to find this information, contact your insurance agent or company that covers your current car and be prepared to provide them with the vehicle identification number (VIN) for the new vehicle.
Insurance premiums often differ based on the make and model of the vehicle. Therefore, younger drivers and others perceived as higher risk or those considering a high-end vehicle should confirm that the new car can be affordably insured.
Form of Payment
Bring pre-approval documentation with you to the dealership if you have already spoken with a third-party bank or credit union to secure an auto loan. Remember that dealerships have lenders that they work with that might offer you an auto loan with a lower interest rate.
Car ownership comes with many expenses such as auto insurance, current vehicle registration, license plate fees, sales tax, extended warranty coverage, and others that will require a form of payment.
Keep in mind that many dealerships and most private sellers will not accept personal checks, so you might want to bring a debit or credit card, obtain a certified bank check, or another acceptable method of payment.
Recent Pay Stubs
To secure an auto loan, you will likely need proof of current employment and income.
Regardless of the source of your car loan financing, the institution issuing the loan will want to confirm your ability to make the monthly payments.
Be prepared with recent pay stubs or bank statements that show your history of payroll direct deposits.
Recent Utility Bills
Utility bills represent one way that you can satisfy proof of residency requirements. Other similar documents including a mortgage statement, leasing agreement, credit card statement, or property tax record may also be acceptable for this purpose.
A List of References
A car dealer and/or lender may require buyers to provide a list of reference contacts—typically their name, relationship, and phone number will suffice. Buyers with bad credit are most likely to encounter this requirement, which serves as another verification method.
For example, references are often required by “buy-here, pay-here” car dealerships that offer in-house financing to subprime buyers. References afford dealers another means of identity or residence verification and contacts for possible future collection efforts.
FAQs
What credit score do you need to buy a car?
No standard “minimum score” exists to secure vehicle financing, but bad credit auto loans represent an expensive high-interest type of debt. One reason why buyers with poor credit will likely find an institution willing to offer them an auto loan is because they are secured loans.
Car and mortgage loans represent secured rather than unsecured debt such as medical bills, most credit cards, and personal loans. Because the car has monetary value, it serves as collateral for securing the loan.
For example, a lender offering auto loan financing knows that if the borrower fails in adhering to the monthly payment schedule, the vehicles may be repossessed and used for offsetting losses.
What is a good credit score to buy a car? The following chart illustrates how your credit score impacts interest rates, which are expressed as annual percentage rates (APRs) that include the interest rate and applicable fees.
Car Loan Interest Rates According to Credit Score
Credit Score RangeAverage APR for a Used CarSuper Prime (781 – 850)3.66 %Prime (661 -780)5.49 %Non-Prime (601 – 660)10.49 %Subprime (501 – 600) 17.11 %Deep Subprime (300 – 500) 20.58 %
Source: Experian Q2, 2020
Can you lease a car with bad credit? Unlike a traditional motor vehicle loan, leasing a car is more of a long-term rental typically offered by a new car dealership with fixed monthly payments.
Roughly 95% of current vehicle leases involve new cars, meaning that most repairs are covered by manufacturer warranty service contracts. Although some dealerships might make exceptions, most only lease vehicles to those with a minimum of a 700-credit score.
Is it better to finance a car through a bank or dealership?
Choosing whether to finance a vehicle through a bank or the dealership where you are buying the car depends on factors including your credit score, who offers you lower interest rates, the availability of special incentives or promotions, and others.
Obtaining a loan directly through a bank often involves obtaining an initial pre-approval. The pre-approval is helpful because you will know your (maximum) pricing limitations when shopping for a vehicle and know the interest rate range that you qualify for.
Going directly through a bank and obtaining pre-approval may deter the dealer from persuading you to spend more than you should and to avoid any interest rate markups that dealers often add when they coordinate the financing.
If you have an existing relationship with a bank, they might be willing to offer you more favorable rates and terms. Keep in mind that banks often have certain vehicle requirements, such as age and mileage restrictions on used cars as shown in the chart below.
Auto Loan Rates: Huntington National Bank
Model YearLoan TermMinimum Rates202266 months4.23 %202166 months4.23 %202066 months4.23 %201960 months4.33 %201860 months4.58 %201754 months4.62 %201648 months4.67 %201542 months4.92 %201436 months5.11 %
Source: Huntington Auto Loans
Most dealerships have an established network of lenders and will “shop around” on your behalf to find the best interest rates. If you have a bank pre-approval, consider using this to create a competitive opportunity to secure better rates.
Buyers with poor credit, such as below 600, may not qualify for direct or dealer-facilitated bank loans. Many of these buyers may rely on direct financing offered by “buy-here, pay-here” dealerships specifically geared for the “subprime” buyers.
“Buy-Here, Pay-Here” auto loans typically have exorbitant rates and fees; however, subprime borrowers may have limited options until they improve their credit status.
What credit score do you need to get 0% financing on a car?
Zero-interest vehicle loans are generally reserved for “well-qualified buyers” that have very good or excellent credit. According to Experian, this often translates to a score of 740 or higher–but this may vary.
Zero-interest car loans are most commonly offered by vehicle manufacturers through their dealership networks to increase the sales of certain new car models. In some limited cases, 0% financing is available for “certified” late-model used cars.
Additional eligibility requirements may also apply. For example, the dealer may require a cash down payment in the 10 to 15% range or impose a maximum debt-to-income ratio.
The 0% financing offers sometimes prevent buyers from taking advantage of the rebate incentives that manufacturers offer toward new vehicle purchases. Therefore, borrowers should analyze these options both ways.
Do dealerships register cars for you?
Maybe. The rules and guidelines regarding vehicle registration are implemented at the state level and dealers may or may not legally be permitted to facilitate the process.
For example, if you purchase a new car from a dealership in Ohio, the dealer executes the registration and title paperwork on your behalf. In these jurisdictions, expect the registration fees to be added as a line item in the sales agreement and included in the purchase price.
In many states, buyers leave automobile dealers with displayed temporary tags and a temporary written registration document that expires in 30 days. The buyer must then visit the appropriate state motor vehicle agency within 30 days to properly register and obtain license plates.
The post What to Bring When Buying a Car appeared first on Credit Strong.
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