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Publish Date - January 29, 2021

Author: Karla Lopez

Categories:   Auto Loans & Financing    Types of Car Loans    Vehicle & Buying Research   

The Challenges In Acquiring An Auto Loan

Have you thought of acquiring an auto loan but hesitated because you do not know what to expect? If so, have you taken any kind of loan in the past? If yes, you already know what to expect from an auto loan as all loans are just the same, with only the purpose varying. However, if this is your first time taking out a loan, you must read on.

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Have you thought of acquiring an auto loan but hesitated because you do not know what to expect? If so, have you taken any kind of loan in the past? If yes, you already know what to expect from an auto loan as all loans are just the same, with only the purpose varying. However, if this is your first time taking out a loan, you must read on.

Like any other kind of loan, acquiring an auto loan also has its sets of challenges which range from the requirements needed to the major car financing mistakes commonly made by borrowers.

Requirement Challenges

Here are the most common challenges that you might encounter along the way when you acquire an auto loan.

A Good Credit Is Required

If you plan to take on an auto loan, make sure that you have a good credit score. This is one of the most common challenges many face when they apply for auto finance. Lenders or dealers will often require you to have a credit score of at least 660.

If you have not met the required credit score to acquire an auto loan, there is a high chance that your application will get rejected. Remember, before you apply, you must first know your credit score. Although a rejection from a car lender won't be visible on your credit report, the hard inquiry they made will.

You Must Have A Stable Income

Having a stable income is one of the reasons most people want to acquire an auto loan. Just like all the other loan types, a stable income is requisite for you to be considered. If you do not have a stable job and are earning below $1,500 a month before tax, lenders will not approve your application.

For self-employed individuals, you may still have a chance to acquire an auto loan. However, there are some extra documents needed to prove that you can pay your loan. A sample of this document would be copies of your tax returns to give the lender a reference regarding your income. A stable income assures the lender that you can pay the auto loan regularly on its scheduled repayments.

Countless Documentations

Another challenge you should be ready to take on is to acquire numerous pieces of documentation that the lender will certainly require. Example of documentation that will be needed are:

  • Credit and Banking History
  • Proof of Income
  • Proof of Residence
  • Details of the Vehicle
  • Identity Proof
  • Insurance Proof
  • Down Payment Method

If the vehicle is a trade-in, an additional requirement of the vehicle's current registration is needed. It can be inconvenient and time-consuming to acquire such documentations, which is a real challenge to most applicants.

If you cannot provide the complete documentation requirements, your loan application will likely be disapproved by the lenders.

Common Auto Loan Mistakes By Borrowers

When borrowing money for your dream car, there are mistakes that you might commit. These mistakes can significantly affect your auto loan and can even put your financial situation at risk.

Don’t Know What You Want

This is a real scenario for most car buyers. Knowing what you want seems impossible with thousands of available cars in the market with different models, designs, and prices. Having a vague idea of what you are looking for is not enough.

Do not expect that you will come across the necessary details along purchasing the car, as you might end up being disappointed. You should make sure that you can get the value for your money and meet your needs.

It is recommended that you know what you need and what you want in a car before deciding to take up a loan to purchase a vehicle. A list of features that you like would be helpful when you’re checking out a specific vehicle.

Failed To Consider Extra Fees

Most car buyers only look at the final negotiated price without considering that there are additional fees they need to pay. You have to know that the final negotiated price does not include licensing, insurance, taxes, and extended warranty.

Some of these extra fees are compulsory for you to pay. If you do not consider these additional charges, you’ll end up having difficulties repaying the loan as you are going to pay more than what you expected.

Paying High-Interest Rates

If you plan to take advantage of the car dealer's zero down payment offer, you will likely have a higher interest rate. It is best to put down a large down payment to avoid getting buried on your auto loan.

Save up for a down payment first before you purchase a vehicle. You should pay at least a 20% down payment or higher to avoid paying high amounts on your monthly repayments. It may be a huge leap for you, but it is all worth it as it will help you get out of debt faster.

Whether it is the issue of requirements or the mistakes you make as a borrower, these challenges are common in acquiring an auto loan. You need to avoid these mistakes and prepare what is needed to spare yourself with these challenges when applying for a loan.