Car loans are among the most sought-after loans, and they are always in high demand. However, despite their high demand, the market lenders feel that most borrowers are still not aware of some basic things.
Here are several facts that apparently add to the circumstances when you plan to buy a car and apply for car loans. Consider these facts as the preconditions for your car finance and also a way to play safely on the approval part.
Applying through a broker can invite multiple search footprints
Yes, it is 110% true, especially when a broker is not fair in its intentions. It is in the greed to get your funds approved from a lender and get the commission in exchange. This causes multiple search footprints because they send your file to many lenders.
Many people do not know the meaning of a hard check, and the brokers hide their adverse effects. It is the reason that in ignorance, they permit the broking company. As a result, the multiple footprints occur, causing degrade in the credit score.
There is one more the fact that you should know. The brokers suggest the loan option of the lender that pays them a higher commission. In that case, it is not possible to expect an unbiased suggestion from a broking company. No matter how expensive the car finance deal of a loan provider is, if it pays a good commission to the broker on every deal, it will always suggest you the same lender.
You may need more than minimum deposit despite good credit score
Most of the borrowers believe that they can get a loan with a minimum of 10% deposit with a good credit score. It is right in most of the cases, but not always because of specific reasons.
It happens in two cases – 1) poor debt-to-income ratio 2) irregular income (normally self-employed)
- Poor debt-to-income ratio – The debt-to-income ratio is a decisive factor. It is not only about paying the bills and debts on time; it is also about the ratio of debts as compared to your monthly earning. It is essential to see that you do not keep multiple debts before applying for the car loans.
- Irregular income – You may pay the debts on time even with an irregular income, but for car loans, the lenders and consistent income are significant factors. If that is absent from the financial records, oops! The deposit size can swell-up to several more pounds increasing the minimum percentage.
Always get a pre-approval before you finalise a car
Of course, it is a safer way to keep harmony on what car you can buy and how much you can get on a car loan. When you already know that what is the maximum limit in the loan amount that can be borrowed, it is easier to finalise the vehicle.
Do not forget that the final approval amount can be different from the pre-approved amount. It is because, for the final ‘yes’ on your loan application, the lender takes a more in-depth look. While for the pre-approval, only takes a glance at your personal finances.
However, if you are sure, that the financial conditions are acceptable and there is no shocking surprise for the lender at the end, pre-approval is helpful. It makes the cost of the big purchase predictable, and you can plan the budget accordingly.
You can always withdraw from a pre-approved loan
Yes, it is accurate and relates to the point above but have different importance because rarely borrowers feel the need to withdraw from an agreement. But at the same time, it is an essential tool that a borrower can use for his reasons.
Usually, a borrower can cancel the car loan agreement within 14 days of pre-approval agreement. But if you go beyond that, then you need to cancel it. That can include a considerable amount of penalty. It is essential to notice that some pre-approval offers come with a penalty. The best thing is to confirm the things beforehand and ask the loan provider.
If possible, avoid taking pre-approval from such lenders if you think that you might need cancellation. Find a finance company with no fee or charge and only follows the time limit applicable for cancellation. However, ethically, the lender has the right to take the penalty if you cancel after the 14 days. But there can be some options in which you may get 4 to 5 days more even after the withdrawal called the cooling-off period.
You may get funds after a job switch in the last 9 months (current scenario)
This point is quite helpful, but it is for a temporary period due to corona mess everywhere. Due to the prevalent financial crisis, people are jobless because companies are closing or cost-cutting on expenses and employees.
In current circumstances, if a person finds another good job that has stability and that can be proved, the lenders can consider that.
Think about a person who switched the job because the last company was already closing due to heavy loss. He moved to the other job as a better option, and it was a smart move. In that case, a lender should undoubtedly consider the new job.
Try to change the job before 9 months and not less than that. However, if the employer is giving you a good salary, some loan companies may consider the last 6 month of income proof. All depends on personal circumstances. However, the duration should not be less than 6 months because that can cause a big mess for your approval chances.
The above points can help you move smoothly towards the car loan approval. You know what, one needs to pay attention to only some basic things. After that, the funding never remains a difficult task. If you keep the personal finances stable, it is even a piece of cake to get car loans.