Is It Challenging to Take Out a Car Loan?September 16, 2022
When it comes to car shopping, first-time buyers might also be first-time borrowers. Paying the total price for a new or used car is out of many people’s budgets, so they explore financing options. For some, the idea of taking out a refinance car loan appears daunting. It shouldn’t be since the process is somewhat straightforward.
When financing a car, the typical steps involve making a down payment and/or trading in an old vehicle as a partial payment. An auto loan covers the remaining balance, and the borrower must make monthly loan payments on time until the balance reaches zero. At that point, the title would change over to the borrower, who becomes the free-and-clear owner.
A borrower might accept terms that are not perfect, but the offer may be the only one available. So, the person drives off the dealership lot with a new or used car and a loan with a high interest rate. That does not mean the person is now locked into paying a costly loan for the entire term. Opting to refinance car loan deals involves taking another loan later to replace the original one. As Lantern Credit notes, “Depending on individual financial situations, applicants could qualify for a lower interest rate through refinancing.” Of course, the would-be borrower must qualify for the new loan.
When applying for a loan, expect the lender to ask the borrower to fill out an application. The application requests pertinent information about the borrower. Name, address, employer, income, and other standard identifying background items will commonly appear on the paperwork. Personal identifying information allows the lender to do more than identify the applicant. The information makes it possible to perform a credit check.
A credit check allows the lender to examine the applicant’s creditworthiness. The applicant’s past borrowing and payments create a credit profile based on a numerical scale. People with credit scores of above 800 will be better lending candidates than those with poor credit. That said, even a person with less-than-desirable credit could receive approval. Different lenders have different requirements, although lower credit scores will typically lead to higher interest rates.
The timeframe for auto loan approvals varies. Various factors could lengthen or shorten the approval or denial process. That said, the process shouldn’t take very long, as internet access could reveal pertinent information almost immediately. When there are positive responses, lenders could issue a preliminary approval before stamping the full approval.
Once the financial institution approves the loan, the borrower’s funds go to the seller. The seller releases the vehicle to the buyer, but the lender holds the vehicle’s title. If the borrower defaults on the loan, expect the lienholder to repossess the vehicle. Hopefully, the parties could take steps to avoid that scenario.
Car shoppers would fill out a straightforward application to finance a car. If approved, the buyer takes possession of the vehicle but won’t own it free and clear until paying off the loan balance.