Things you need to do before applying for a car loan

Things you need to do before applying for a car loan. We plan out our education, our wedding day, we even plan our shopping list, but very few of us actually plan for one of our biggest expenditures, a car loan. But what can / should you do to plan for your next car loan. Sure I need to choose the car model, petrol or diesel, blue or pink, but what else?

Because loans have become so common and everybody has them we no longer fear them. However car loans, or any loan for that matter, are potentially dangerous products, that could ruin your financial health. We don’t mean to say you shouldn’t use them, they are not useful, or to discourage you from having a car loan. It’s just that there would be many more happy families if we didn’t take on loans more often than most people take showers. It would be useful if people had to get a license before applying for a loan to make sure all the details are understood before it is too late. If people understood loans before they signed them, maybe there would be less bankruptcies and foreclosures. This article aims to point out a few useful hints on what to do before we commit to a car loan.

Check your income to expenses ratio.

This is a fancy way of saying, check how much money you make and how much you spend. Although it is a simple procedure many lack the discipline to sit down and carry out this exercise. However if you ever go to a financial advisor the first thing he will do is check your income to expense ratio. This is the first and most vital step in making smart car loan decisions. It is only useful to carry out this exercise before you get a loan. If you do it after, it’s much like checking if you are wearing a bullet proof vest after you’ve been shot at. It’s definitely interesting to know but it doesn’t help an awful lot.

This is easy to do. Draw two columns, on one column  write out all your expenses, on the other one your income. If your expenses are over 60 to 70 % your income maybe you should wait it out  a little while till your expenses have dropped or your income grows.

Find out your credit score before you apply for a loan.

Depending on your credit score you will have more or less car loan options. The interest rates will raise or drop depending on your credit score also. If it is too low you might get your application denied. Every time you apply and are denied a loan your credit score gets worse. It pays to know your credit score before you apply. If your score is bad it sometimes pays to wait a little while, improve your credit score with secured loans or lines of credit and then apply for your car loan with better options.