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First time buyers are often clueless about how to secure financing for their car. For those who have never tried applying for an auto loan, the task can be quite daunting. However, the first time buyer auto loan can help them to get the financing they are looking for. However, there are many aspects to a loan application whose knowledge can actually help the applicants to patiently go through the process. In the subsequent paragraphs, we try to clarify some of such aspects.
Lenders: The lenders can be anyone from a bank, financial institution, credit unions, private lenders, dealers, manufacturers to online lenders. Most of these lenders will be willing to offer a loan.
Interest rates: Interest rates can be higher or lower depending on the profile of the applicant. If the applicant has stable source of income, or is employed with stable income, or has a co-signer, or possess collateral, or can put down higher amount of down payment, then the dealer tends to lower down the interest rate. However, if the applicant does not have any of the mentioned factors to support his application, then it leads to higher rates of interest with limited credit.
Credit rating: Usually, the first timers have no credit available to them because till then they have always transacted in cash. However, the credit report holds importance in approval of loan application. In absence of credit history, the lenders may increase the rate of interest on the loan because they cannot ascertain the payment capacity of the applicant. And thus consider them an uncertain risk. Thus raising the rate of interest is to cover the risk of the lender and sometimes also for the extra profit.
Terms and Conditions: The applicant must carefully check all the clauses involved in the agreement and also the terms and conditions of the loan program. If it is a promotional offer by the manufacturer or dealer, the applicant must take the advantage of the offer as it may have free benefits and discounts and sometimes lower rates of interest.
Budget: The first time buyers should be confident of their income and be well aware of their funds. It is so because unless he has a regular source of income, he may not be able to pay off the monthly payments of the loan. This will result in default payments and result in drop off credit scores. And bad credit scores are never good for anyone. And if one has extra funds available, he/she can use it to pay down payment for the car. This will lower the rate of interest of the loan.
Co-Signer: Co-signer is a person with stable income and good credit rating who acts as a guarantor of the payment in case the primary applicant fails to make the loan payments. If the applicant actually finds a co-signer for himself, then his task to secure an auto loan becomes easy. The dealer will treat him at par compared to other clients as the maximum limit of the loan is based on the annual income of the co-signer.
Well, these were some of the important aspects that an applicant must know. There are others factors too which can influence the decision of a lender to approve the loan.
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