Financing a vehicle is a big deal and a long-term commitment. A loan contract is legally binding, so it’s important to ask lots of questions before you sign that dotted line with your auto lender.
Don’t Be Intimidated – Ask Questions!
The lender can’t move forward with the loan contract until you sign it. If you feel uncomfortable during any part of the process, or you’re not sure what something means, ask for clarification. If your lender or the finance manager at the dealership seems to be dodging questions or is unwilling to answer them, it may be a good idea to walk away from the deal.
8 Smart Questions to Ask
1. What are your vehicle requirements?
Most auto lenders have specific vehicle requirements that need to be met before they approve a car loan. Generally, lenders prefer to finance vehicles that have clean titles – meaning they’ve never been deemed a total loss, haven’t been rental vehicles, and haven't had so much damage they needed to be rebuilt. A clean title is typically an indication that the car is in good condition, which means there’s less risk for you and the lender.
Bad credit auto lenders typically only approve loans for cars that have less than 100,000 miles on them and that are less than 10 years old. If you’re not sure what kind of vehicle you want, ask if the lender has any age or mileage restrictions.
2. What are your insurance requirements?
When you finance a car – new or used – you’re required to carry full coverage auto insurance. Full coverage usually includes comprehensive, collision, and liability coverage. However, your auto lender may require a little more coverage in their contract.
Before you buy an insurance policy, ask about meeting the lender's specific requirements. If you get a policy that doesn’t satisfy their stipulations, it could mean losing the vehicle or getting force-placed coverage.
3. How can I qualify for a lower rate?
Financing a vehicle usually comes at a cost: interest charges. Unless you qualify for a 0% interest rate (which typically requires a really good credit score), you can expect to pay interest charges when you finance a vehicle.
Lenders usually assign interest rates based on your credit score. If you have less than perfect credit, you may only qualify for higher rates. However, you can ask what your auto lender's credit tiers are and what you could do to get a lower interest rate. The lender may ask for a larger down payment or ask you to choose a newer vehicle (new cars tend to get lower rates than used ones).
If you’re concerned about paying a lot in interest charges, ask what you can do to qualify for a lower interest rate – you’ll never know unless you do!
4. What’s the shortest loan term I can get?
Choosing the shortest loan you qualify for means fewer interest charges. However, your monthly budget and credit score can determine the length of your loan term.
Since most auto loans are simple interest (charged daily based on your balance) loans, the longer your loan term, the more interest charges accrue. Discuss your loan term options with the lender and the overall costs of different loan lengths before choosing your deal.
5. What is the total cost?
Be sure to ask the dealer about the total cost of financing a specific vehicle with your assigned interest rate and loan term. You can ask to see an amortization schedule that outlines your interest charges and principal balance over time. There’s more to financing than just the cost of the vehicle, so make sure to see the bigger picture so you know how much you’re paying during the loan term.
6. Do you offer refinancing?
Refinancing is the process of replacing your loan contract with another one on the same vehicle. Often, bad credit borrowers see an improvement in their credit score and apply for refinancing to get a lower interest rate which can lower their monthly payment.
If your credit score isn’t great and you’re interested in refinancing at some point in the future, ask your lender if this is something they can help you with. Many borrowers seek another lender for refinancing, but if you like your lending institution, you may be able to refinance with them down the road.
7. What are your requirements for a deferment?
There may be time during your loan term when you need to pause your car payments. This is called a deferment, and it usually involves pausing your auto loan payments for a month or two and adding them to the back-end of your loan. This gives you time to catch up on your finances and avoid repossession if need be.
However, lenders vary in their qualifications for a deferment plan. Some lenders may require a hardship letter, which outlines why you need to defer your payments. You may also be required to prove job loss, a medical emergency, or something else that comes up which impedes your auto loan payment. Ask about your lender’s deferment plans and what requirements you have to meet to qualify if you need this option in the future.
8. What is your repossession process?
This isn’t a very fun subject, but it’s important nonetheless. Some auto lenders can repossess your vehicle as soon as you miss one car payment. Lenders have the right to repossess your car if you default on the loan, but lenders vary on how quickly they act on this recovery process.
Tough times can fall upon all of us, so it’s important to understand the consequences of being late on a payment or missing one too many. Ask your lender about their repossession process, whether they send notices of loan default or missed payments, and what your options for avoiding a repossession are if it comes down to it.
Ready to Find Auto Financing?
Transparency is important when it comes to financing, and you have the right to understand what you’re getting into. There usually isn’t a process to back out of a car loan contract if you get buyer’s remorse – so it pays to be prepared.
Read through any legal contracts thoroughly and ask questions if you’re not sure what a section means. Contracts can be filled with legal jargon, but a trusted lending institution should be able to address any concerns you have.
Having smart, planned questions to ask your lender is important, but finding a lender that can work with your credit can be a hassle. Many traditional auto lenders are wary to assist bad credit borrowers, but you may have more options than you think.
Here at Auto Credit Express, we’ve created a nationwide network of dealerships that have poor credit lending resources. Get matched to a dealer in your local area after you fill out our free auto loan request form. There’s never a cost or obligation, and we’ll do all the searching for you. Get started today!