5 Questions to Ask When You’re Getting a Car Loan

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Even with poor credit.


Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.

, Contributing Writer - June 8, 2020

Confused or overwhelmed by the car buying process, the jargon, or where to even start? Don’t worry – we go over important questions you should ask your dealer and lender to help work you through the ever-complicated car buying process.

First Things First: How’s Your Credit?

Your credit score is going to largely determine how you go about buying your next (or first!) vehicle, and also determine the questions you’re going to need to ask your dealer and lender.

If you’ve got great credit, you can typically get pre-approved at your bank or credit union, and this helps streamline the transaction process.

If your credit needs some improvement, you may need to work with a bad credit auto lender to get car loan approval. This means finding a dealership with a special finance department.

The car buying process can be intimidating – especially if you’re a new borrower, no matter what your credit situation is! We’ve created a list of questions for you to ask your lender and dealer, so you can avoid stumbling through the auto financing process.

Questions You Should Ask While Car Shopping

1) “What’s my interest rate going to be?”

This question is for the lender you’re working with, or for the finance manager at a dealership, depending on where you’re getting financed.

Interest rates are expressed by a percentage, and this question gets an answer such as “Your APR is going to be 12%.” APR stands for “annual percentage rate,” which means that you’re to pay 12% interest on the loan balance each year. The less you owe, the less you pay in interest charges. This means your interest charges decrease as you continue to pay off the loan.

You want to aim for the lowest interest rate, but if you have credit issues, you’re likely to get approved for a rate higher than that of a good credit borrower. Interest rates are largely determined by your credit score, but you can lower the amount you pay in interest charges by putting cash down on the loan, which brings us to our next question:

2) “Do I need a down payment?”

If you don’t have the best credit score, you’re likely going to need a down payment, especially if you’re working with a subprime lender. Subprime is synonymous with bad credit, meaning these lenders work with credit-challenged borrowers. Typically, subprime lenders require a down payment of at least $1,000 or 10% of the vehicle’s selling price. You can put down just the minimum amount required, but there’s nothing stopping you from putting down as much as you can afford.

A good credit borrower may not need a down payment, but it’s always a good idea to put some cash down to help lower the interest charges. Additionally, a down payment lowers your monthly payment! Want a specific car, but not the large monthly payment? Use an auto loan calculator to determine how much you’re going to need to put down to get to the payment you want each month.

Keep in mind that every lender is going to vary in their down payment requirements, and it largely depends on the amount you’re financing and your credit score.

3) “What’s the value of my trade-in?”

This question only applies to those who want to trade in their current vehicle to put toward their next one. This question is for dealers, since they’re the ones that determine the actual cash value of trade-ins. A trade-in can help cover a down payment requirement, too, since it doesn’t have to be just cash.

You can estimate the value of your current car using online sites, although you might get less than what those sites suggest. The dealer is likely to thoroughly inspect the vehicle and probably drive it to help determine the trade value that they offer you.

You may be able to negotiate the value of your trade-in, but you won’t have any negotiating power if you don’t have a rough idea of what it’s worth. So, do a little bit of research before taking the car to the dealer to be appraised.

4) “What does that service contract/extended warranty cover?”

This question is for the finance and insurance (F&I) manager at the dealership. After you’ve picked out a vehicle and secured a loan, you return to the finance department and discuss extended warranties and other products offered by the dealer.

If you’re financing a used car, it may be a good idea to purchase a service contract or extended warranty. New vehicles come with a manufacturer-backed warranty, but used cars typically lose this perk over time or once they hit a certain mileage.

Be sure to read the contract carefully, and find out where you need to take the vehicle if something happens. Some service contracts require that the car be fixed only at the selling dealership. Used vehicle service contracts are optional, but are worth considering, depending on the car.

It’s also a good idea to ask questions about any items that the F&I manager offers. Take your time, so you can learn what you’re really considering. The decision comes back to you, and what you feel you need when it comes to additional coverage.

5) “What’s the total cost of the car?”

Buying a vehicle is more than just the sticker price on the window – there are many other costs that come with financing.

The total amount you’re going to pay is listed on the “buyer’s order”. It lists the car’s negotiated selling price, your down payment, your trade-in amount, dealer’s documentation fee, title and licensing fees, and sales tax. At the bottom, you can see the total price after everything is factored in.

Additionally, be prepared to pay for full coverage auto insurance, gas, and maintenance. You’re required to have full coverage car insurance if you’re financing a vehicle, but the cost won’t be determined at the dealership. You need to secure full coverage auto insurance before you can drive the car off the lot.

Feeling Better About Car Buying?

Now that you’re ready and armed with questions, it's time to find a dealer that you can work with and get to car shopping! If you’re having trouble finding a lender that can work with your poor credit, start with us at CarsDirect.

We’re able to create this list of questions because we’re connected with dealerships across the country, and we know which dealers work with subprime lenders. If you need a vehicle and you need subprime lending options, start here by filling out our free auto loan request form. We’ll look for a dealership in your area, and help get you on the road.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.

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