Car Loans: What to Do and Not Do When Buying a Car

By: iTHINK Financial | Apr 30, 2022

If you're in the market for a new car, you have a lot to think about. If the car serves as your personal vehicle, you'll rely on it every day for your daily commute.

You'll likely use it for every aspect of your life. This includes traveling, transporting your kids, camping, trips to the mall, and more. If you're looking for a company vehicle, there are other things to consider. It would be best if you made a solid investment for your company.

We're here to help. Follow along for everything you need to know about car loans and how to buy a car. We'll walk you through the dos and don'ts of the entire process.

Buying a Personal Vehicle

First, let's talk about how to buy a car for personal use. In this case, you need to consider your personal finances, your credit score, your daily needs, and your lifestyle.

Getting a new car can be incredibly exciting. However, if you make a poor decision or get in over your head financially, you'll be forced to reap the consequences. It's best to take your time and do your homework before committing to a new vehicle.

Personal Auto Loans

The first step in buying a personal vehicle is getting preapproved for car loans. This is an easy process and won't impact your credit score. You can check your loan eligibility online to see how much money you can get approved for.

Aside from your maximum budget, getting preapproved will also provide insight into:

  • Interest rates
  • Monthly loan payments
  • Loan terms

Learning about your qualifications for auto loans will help you budget for your new car. If you can't get approved for as much money as you want, spend some time working on your credit score.

Assess Your Monthly Budget

Getting approved for car loans isn't the only thing you need to do to avoid financial turmoil. You also need to assess your budget to determine how much you can comfortably afford to spend on a new car.

Remember, your monthly loan payment won't be your only expense. You also need to budget for:

  • Yearly registration fees
  • Monthly auto insurance payments
  • Fuel costs
  • Maintenance and repairs (about $400 a year)

We recommend choosing a vehicle that's easily affordable. This will make it easier to handle financial emergencies as they pop up, rather than panicking to find the money. 

New or Used?

One of the biggest questions people ask when learning how to buy a car is whether they should buy new or used. There are pros and cons to each option.

For example, if you opt for a brand new car, you'll gain access to state-of-the-art technology and engineering. The vehicle's driver assistance features, safety features, entrainment features, and comfort features will be unparalleled. However, you will pay a pretty penny to enjoy these luxuries.

Not only are new car loans higher and harder to obtain, but you'll also lose a lot of money through depreciation. Brand new cars will lose anywhere from 20% to 30% of their value in the first year alone. Depending on where you live, yearly registration fees are also more expensive for brand new vehicles.

Used cars are more forgiving, even if the vehicle is only two or three years old. You can save a lot of money without forfeiting much on technological advancements.

Yet, when buying used, you must accept that the car has had other owners who may or may not have taken good care of it. Therefore, get your hands on the vehicle history report before buying a used car.

Consider Your Lifestyle

To find the right car for your needs, think about your lifestyle and how you will use the vehicle. If you're looking for a reliable, fuel-efficient vehicle to get you to and from work every day, find a smaller eco-friendly sedan. However, if you have kids and pets, you might want something with a little more cargo and passenger room.

On the flip side, think about your hobbies. Do you like outdoor recreational activities like camping, hiking, and fishing? If so, you need a rig that you can take off-road.

If you plan to haul a boat or a camper, you also need a vehicle to handle the weight. In this case, you'll need a powerful SUV or pickup.

Find the Right Dealer

It's essential to buy a car through a seller you can trust. This means going down to the local dealer to shop their inventory for most people.

However, you can also shop online to find more options. Just make sure the seller you're using has positive customer reviews.

While you can save money by finding a private seller, private car sales carry more risk. Private sellers don't operate under any governing authorities (other than their own conscience). They could be selling you a lemon, and there's not much you could do about it.

That's why we recommend using our auto buying service. We will help you find the car of your choice and provide you with several options for car loans.

Through iTHINK Financial, you'll get the most value and receive a free lifetime membership to myEZ Car Care. This will grant you access to valuable travel and vehicle maintenance discounts. MyEZ Car Care memberships also come with a free three-month trial of SiriusXM. 

Take a Test Drive

Finally, before making an offer or signing any contracts, take the vehicle on a test drive. You may not enjoy driving the car once you're in the driver's seat, for all you know.

Just as importantly, a test drive will allow you to assess the vehicle in person. High-definition pictures and videos are great, but nothing can compare to an in-person inspection.

Make sure all of the vehicle's components function correctly during your inspection. This includes things like:

  • Heat and AC
  • Defrost
  • Windshield wipers, fluid
  • Power windows
  • Power seats
  • Radio and entertainment features
  • And more

During the drive, watch your gauges and make sure there aren't any red flags or concerning issues. Check the steering, turning radius, braking, etc.

Is the vehicle responsive? Is it intuitive and easy to operate? Do you have a clear field of vision in all directions?

If you like the vehicle, take it to a trusted mechanic to give it a thorough pre-purchase inspection. Provided everything checks out, you can make your offer.

Buying a Commercial Vehicle

Now, let's take a look at how to buy a car for business purposes. In many ways, purchasing a commercial vehicle is like buying a personal vehicle.

For example, you still need to ensure the vehicle is mechanically sound and take it on a test drive. You also need to vet dealers carefully before making an offer.

However, there are some significant differences we need to discuss.

Commercial Car Loans

Commercial car loans are one of the most significant differences between personal vehicles and commercial vehicles. When you buy a vehicle for your business, your personal credit rating still matters.

The dealer or loan provider will also use your business credit history to determine your eligibility for the loan. However, if you don't have much credit history in your business, they will default to your personal credit history.

Fortunately, most commercial car loans come with lower interest rates. Some lenders will even waive the need for a down payment if you're purchasing a vehicle through your business.

To secure commercial car loans, you'll need to provide proof that you own the company. You might also be asked to provide your EIN, bank statements, recent tax return documents, profit and loss statements, balance sheets, and more.

Identify Your Business Budget

Just like applying for personal car loans, applying for commercial auto loans requires an in-depth review of your budget. How much money can your business afford to spend on a new car?

Dig into your cash flow reports to determine how much room you have in your monthly budget for commercial car expenses. This includes monthly loan payments, fuel costs, insurance, and registration. Use our auto loan calculator to gain more insight into your potential costs.

Consider Your Professional Needs

Finally, finding the right vehicle for your business means identifying your needs. Do you need an eco-friendly daily driver or a truck for hauling tools, equipment, and materials? Or maybe you need a commercial van.

Decide what type of vehicle will benefit your company the most. Then, shop around for your options to find the best prices.

Consider your long-term costs. If you have a fleet of vehicles, it's a good idea to make fuel efficiency a top priority. Otherwise, you'll be paying a fortune in gas prices.

Lastly, think about the well-being of your employees. Invest in commercial vehicles with high safety ratings and high-quality driver assistance features. It's your duty to keep them safe while on the road.

Are You Looking Into Car Loans?

Whether you're in the market for a personal or commercial vehicle, it's essential to assess your options carefully. Find the best car for your needs and your budget.

Just as importantly, look for the best car loans available to you or your business. You deserve low-interest rates and favorable terms.

We can help you there. Contact us today to make an appointment. We would love to talk to you about your vehicle needs and help you set up an affordable financing plan.