In the Moment: Why Timing Matters When Seeking an Auto Loan
In life, timing is everything. Whether you’re applying for a job, proposing to someone or capturing the perfect picture, doing things at the right moment can mean the difference between success or failure. It’s no different when seeking approval for an auto loan. Unfortunately, too many people ignore this crucial element, and find themselves in trouble down the road. That’s why it’s vital for you to consider the aspect of when you should apply for financing. A car loan is a major commitment that can weigh down on your financial freedom if you’re not careful. So timing is by no means a factor to ignore.
On the Clock
It might be confusing trying to figure out the concept of timing when it comes to choosing an auto loan. However, it’s not as tricky as it looks. It’s really all about looking at your life in the present, how it may change in the near future, and deciding when to make your application.
Time of year
There might not necessarily be an actual time of the year that’s better for buying a car. With that said, there are certain times throughout the year that have been labelled as “ideal” for car buying, and the opportune moments for getting a loan coincide with the best times to buy a vehicle. Holiday seasons (most notably Christmas/end-of-year celebrations), off -seasons (such as buying a convertible in the winter), or if dealers are offering incentives. With that said, these conditions may not apply to all people, such as individuals who are looking for car loans while having bad credit.
Are you in the midst of applying for another loan, or about to make a big-ticket purchase? If that’s the case, you might want to reconsider applying for an auto loan at this time (or hold off on the purchase if it’s not as important). For example, if you’re applying for a pre-approval on a mortgage, then you should give it a few months before going through with a car loan. Why? We’ll get to the answer shortly.
If you’re currently undergoing difficult circumstances, then it might be best to seek a car loan at a better time. For example, dealing with a sudden illness or disaster where you don’t have full insurance coverage, should motivate you to tackle the emergency first. A car may not be in the works for you at the moment. Or if you have stumbled upon some difficult financial times, and they’re so burdensome that every transaction you make needs monitoring. In such cases, it would serve you well to stay away from a car loan and wait for a more stable time.
Why You Need to Get the Timing Right
So you now have a gist of the good and bad times to seek approval for a loan. But what about the reasons why? After all, you might think there’s no reason to take this seriously if there isn’t a strong motivating factor to do so. However, there is one, and it’s hardly personal.
Remember, everytime you apply for a loan, whether it be for a car, business or school, lenders are looking at your credit profile. They do so to assess the level of risk you pose to them. Of course, everyone is viewed differently based on their credit history, and the success of their loan approvals revolve around their records. The same goes for you.
There’s something called your “debt-to-income” ratio, and lenders use this variable to determine your ability to pay off a loan. To put it simply, it’s a comparison between how much money you rake in, and how much you can put back to pay off your debts. With that said, if your debts seem higher than what your income can take care of, a lender might not approve your loan.
Now let’s say you’re going to buy a new home, and get approved for a mortgage. This will count towards your debts, but you will get approved if your income can cover this commitment (also, if your other debts aren’t too substantial). But if you decide to apply for an auto loan at the same time, then you might have a hard time. Your debt-to-income ratio may swing out of balance – as in the debts may outweigh your income statement and net worth – and a lender may deny your loan. For this very reason, it’s important to get your timing right.
Tips for good timing when seeking a car loan
- Prioritize your debts – It’s not a good idea to add too much on your plate at once. So if you’re about to be approved for another loan, hold off on the auto loan for now. With that said, you can make the car financing a priority if it’s more pressing.
- Understand the effects of debt vs income – Remember how lenders see things. If your debts outweigh your earnings or the overall worth of your assets, they can deny your approval for future loans. So consider your other liabilities and how you can pay them off (or work around them).
- Be on the lookout for incentives – They may seem rare, but incentives for car loans are out there. It’s a matter of asking auto companies what options are available.
It’s Not Why, It’s When
If asked, “why do you need a car loan?”, the answer would most likely be straightforward. If asked, “what are you looking for in terms of financing?” you probably would have no trouble telling a lender what your needs are. And if you we’re asked, “when is the best time to seek this loan?” you may have an answer too. However, the when is trickier because it should reflect your financial health, and you’ll have to analyze and plan around your circumstances to find the best time. It’s better to play it safe, rather than jump ahead, no matter how drastic your need for a car may be. After all, you don’t want to add to your burdens in the future.