4 Keys for Starting & Ending a Car Loan Without the Stress
Getting approved for an auto loan can excite you, but also put you on edge a bit. You can probably relate to the feeling. It’s exciting because you now know that there’s a means of paying for a car without starving yourself or draining your bank account. But it’s a bit nerve-wracking, because you also realize how much of a commitment it can be. In these days where life is getting less predictable, whether it’s from a lack of job security or a shaky economy, you probably wonder if a time will come when you’ll have difficulty paying off your bills and debts. And it’s understandable. Fortunately, there are ways to make all of these commitments affordable, including a newly approved car loan.
Loan: A Synonym for Burden?
There are certain terms that we associate as being burdensome. Mortgages, contracts, loans – you’d probably agree that after a while, getting your monthly statements for anyone of these things leads to sighs and eye rolls. After all, you’d probably want to see your money go towards something else. But wouldn’t you also agree that if you weren’t concerned about having enough money, making such payments wouldn’t stress you out as much?
Taking the weight off
- Make it affordable – You wouldn’t fret over the price of gum would you? No – it’s affordable. Although a loan will never be as cheap as a pack of Doublemint, you can feel as worry-free as you would be when buying gum if you make the loan affordable.
- Make it practical – When you NEED something, you’ll make sacrifices for it to have it or maintain it. So if you value your car, you’ll see it as a necessity, and will start to put non-essential expenses on the backburner.
- Make it flexible – Loans often make people feel boxed in. But the reality is that there is room for you to make them easier to commit to. In most cases, all it takes is for you to ask a lender the right questions.
Consider your income power
During the approval process, your lender is going to do a lot of snooping around to find out if you’re worth the risk. And that includes your income. You can stay a couple steps ahead, even sparing yourself from loan denial, by comparing your earnings with the size of the loan you want. It’s true that there are several variables that determine whether or not you can get approved, but your income does come into play. Lenders are pretty good at matching your income with the amount of money you want to borrow. If the suggested monthly payment seems unrealistic for you, then it will be an obstacle.
But affordability is something you should think of beforehand – it doesn’t take a lender to tell you what’s suitable for you. Take time to calculate a realistic monthly payment. If you can already see that it’s going to be a struggle, then that alone should tell you to reconsider.
Consider your credit score
You don’t need to check your credit profile constantly since doing so might lead to a drop in your score. However, you can always keep an idea of where it is. For example, there are ways to estimate where it stands (such as the Experian Credit Tracker app which provides an educated guess). You might not land on the exact number, but you can have a solid idea as to where you stand (ie. excellent, good, fair) if you keep good track of your finances. Having such awareness will help you decide if it’s worth going for a certain loan or not. Just keep in mind, though, that your credit score isn’t the sole factor that will get you approved or denied for a loan.
Bigger down payments
If you want to do yourself a huge favour, put more money down on your auto loan. You’ve probably heard these words before, but it’s not always easy to follow. This is certainly true if you’re tempted to buy a new car you truly love at 0% down. With that said, if you’ve worked out the cost and it will be easy on your monthly budget, then by all means, go for it. You just have to be conscious of interest rates and depreciation.
But there’s also the idea of buying a car you can actually afford. The shiny new BMW or Audi may look great in your driveway, but the monthly statement can put a pin through your bubble, so-to-speak. Unlike a 50 inch smart T.V., which you can probably pay off rather quickly, a car is a major commitment, and you can easily pay more than the suggested price (add-ons, interest rates).
Refinance when possible
Earlier on, we mentioned the importance of making a loan flexible. You can do that by taking advantage of opportunities to refinance your loan, provided they are available to you. Doing so can make it much easier to pay for your vehicle in both the short and long term. Of course, you’ll want to look for the ideal times to refinance.
When should you refinance?
- When a lower interest rate than the one you’re currently paying is available
- If your credit score has improved over a period of time
- If you’re in a lengthy auto loan term ( 5 – 8+ years)
You should also be aware of times when refinancing is not so ideal. For example, if it ends up extending your loan, then you might want to skip out on it altogether. Also, if your current agreement is riddled with fees that might cancel out on any savings, it’s better to leave this option alone. But if these conditions don’t apply to you, it’s worth looking into refinancing.
A Load off Your Back
There’s no denying the mixed emotions that an auto loan can evoke. You might feel elated, contented, confident, nervous or even a bit intimidated. But even the feelings you’d consider negative have their purpose, and that’s to keep you grounded and responsible. Confidence – the feeling you really want to experience when signing a deal – is one you can feel if you prepare yourself for the loan commitment in advance. In fact, it’s safe to say that the people who have problems paying for a loan, are the ones who underestimate the costs, the limits of their budget and the long-term impact it would have on their finances. So don’t be like them. Understand what you’re getting into before signing the dotted lines!