Tips for Getting Approved for a New Car Loan: Boosting Your Eligibility

Worried about your eligibility for a car loan? It’s an understandable concern. Many lenders have tightened their rules, making it harder for bad credit borrowers to get financing. But all is not lost, as there are a few things you can do to get the car loan you need.

At the Fox Finance Group, we understand the car loan application process better than anyone. We know what’s expected of you and can help you find the best rates. To give you some insights into this process, we have compiled some car loan application tips.

Assessing Your Financial Situation

It’s easy to get carried away with yourself when shopping for a new car. You set your sights on a premium model and dream big. “I can probably afford $30,000, and if I can afford $30,000, I can probably stretch to $35,000”. Before you know it, you’re eyeing up a sports car. And then reality hits. You go through the car loan application process and are brought down to earth with a deflating thud.

Avoid disappointment by assessing your situation in advance:

1. Check your credit score and make improvements if you can
   • Can you dispute inaccuracies and reduce debt? See below for more info.
2. Calculate your debt-to-income ratio
   • Can you realistically afford a new loan, and if so, how high can you go?
3. Save for a down payment
   • How much money do you need and how long will it take you to save?

When calculating affordability, don’t simply add together your basic expenses. Make room for unexpected expenses. What happens if your child needs new shoes, or you need to make home repairs?

Choosing the Right Car and Loan Amount

Before you look for a car, calculate how much you can afford to pay every month. If your limit is $300, don’t go higher. It sounds simple, but as soon as your eye catches the glint of a beautiful new vehicle and the salesperson starts their practiced patter, that number can creep higher.

Once you have your budget, choose a suitable car. Think about mileage, maintenance, and insurance—if those things are high, make more room in your budget.

When setting your loan, consider the following:

• Terms: Longer loan terms will reduce your monthly payment while greatly increasing the overall cost of the loan. A $30,000 car loan at 9.49% will cost you $490 per month over 7 years and $961 over 3 years, but the latter will generate around $6,500 less in total interest.
• Rates: Every percentage point matters when it comes to the interest rate. Over 7 years, a $30,000 loan costs $490 a month and $41,174 in total when the interest rate is 9.49%, and $445/$37,408 when it’s 6.49%.

Preparing the Necessary Documentation

Get your documents in order before you shop for a new car loan:

• 100 Points of ID: A birth certificate and current passport count for 70 points each. A driver’s license or government ID will cover the rest.
• Proof of Income: A couple of payslips and proof of employment. Self-employed applicants can submit tax returns.
  Vehicle Info: Note the model and registration number of the vehicle, as well as the price.

The lender will also ask about assets (properties, vehicles) and liabilities (debt).

Building a Strong Credit Profile

Your credit score counts for a lot when applying for a new car loan. It’s a record of your debt, credit, repayments, and defaults, and it tells lenders everything they need to know. The higher your score, the easier it will be to get a loan.

So, implement some quick fixes to boost your score before applying:

• Dispute mistakes: If you don’t recognise a line of credit or loan, dispute it. Is there a mistake? Fight it. This should be your first step as it can make the biggest difference.
• Build credit: A large part of your credit score is based on something known as credit utilisation, which compares credit to debt. The goal is to increase the former while reducing the latter. So, keep cleared credit cards active and pay down as much debt as you can afford.
• Get a secured credit card: You need credit to build credit, and if you’re being refused new cars and loans, you might feel like you’re stuck in a catch-22. But there is a solution: secured credit cards. You pay some money upfront and then use your card to spend the balance. Every time you make a repayment, it shows up on your credit report.
• Keep making payments: It’s far from a quick fix, but if you fail to make a single payment, things can go wrong very quickly. Set up automatic billing to ensure payments are made on time.
• Avoid new accounts: Obviously, you will be applying for a new car loan and that will appear on your credit report. But don’t bombard your report with new loan/credit applications, as it’ll hurt your score.

For more info, read our guide to improving your credit score.

Getting Pre-Approval

Getting pre-approval is not mandatory, but it makes a big difference.

You’ll know where you stand and what you can afford. The dealership will also take you more seriously, as they know you’re ready and able to buy.

To get pre-approval, apply for a car loan and go through the initial steps, including an affordability check and credit check.

A Fox Finance Group lending broker can help you to complete these steps.

Choosing the Right Lender

Lenders have different rates and terms. But there’s more to it than that. Consider reputation and customer support—will they help you if you can’t make a payment; can you get someone on the end of the phone if you have a question or concern?

At Fox Finance Group, we work with dozens of the most reputable providers and can connect you to the best one. Contact us now for more car loan advice.

Negotiating Loan Terms

Finally, remember that there is always room for negotiation. Not only should you haggle with the dealership when you eventually find your vehicle, but you can shop around and negotiate with lenders too. You can also adjust the terms by increasing your down payment (thus reducing the total interest and monthly repayment). It might hit your bank balance hard in the beginning, but it will benefit your finances in the long term.

Ready to Secure Your Next Car Loan?

To summarise:

• Check your credit score and other requirements
• Make improvements to your credit report where possible
• Budget carefully and check your affordability
• Prepare necessary documents
• Stick with reputable lenders
• Negotiate car loan terms

And remember, if you’re looking for your dream car and need a reliable and dedicated expert on your side, contact the Fox Finance Group today. Our lending specialists can connect you with the right lender and ensure you get the best possible deal.