Purchasing a new car is a process that begins with applying for an auto loan. As soon as the applicant has filled in the application form, the process shifts to the lender’s work, but it is even more reassuring to know what comes next. It will even assist you in the planning and preparation of the financing process, especially regarding the next steps to be taken. This blog will tell you what happens once you submit your auto loan application.
1. Loan Application Review
The first process that occurs after you have submitted your auto loan application is the evaluation of the documents by the lender. In this review process, the details you entered in the loan application form including employment status, income, credit history, and the debt-to-income ratio are checked. These are the factors that the lenders use to assess whether you are capable of repaying the money borrowed.
During this stage of the process, a credit report is pulled. A hard credit check enables the lender to pull your credit score and credit report, which is very important in identifying whether to approve your loan request, the interest rate you will be eligible for, and the loan repayment terms.
2. Application Approval or Denial
After the review by your lender, you will be given approval, conditional approval, or a denial. If you’re approved, congratulations! You will get your loan offer that contains the loan amount, the interest rate that is charged, and the repayment period. This offer shows how much you can borrow, the repayment schedule, and how much you will pay each month.
A conditional approval simply means that the lending company requires some more information before making its final decision. This may involve further documentation of income, employment, or personal identity. To facilitate quick processing of the approval, it is important to submit these other documents on time.
In case your application is turned down, do not lose hope. The reasons for denial will be given by the lenders, which may include a low credit score, low income, or high current liabilities. Knowing these reasons may assist you in enhancing your financial standing before applying again. You may also consider procuring loans from lenders who have a niche in providing loans to those with low credit scores.
3. Loan Offer Acceptance and Terms Review
After approval, it is followed by the loan offer which has to be read. In this case, one needs to consider the interest rate, the tenure of the loan, which is often between 3 and 7 years, and the monthly installment. Ensure that these terms are affordable and coincide with your financial plan for the future.
You may also wish to compare it with other loan types to ensure you are getting the best deal possible. It is advisable to discuss some of the terms with the lender or if possible negotiate with the lender to reduce the interest rate if any.
4. Loan Agreement Signing
In case you agree to the terms of the loan, the next thing is to sign the loan agreement. This legal instrument seeks to lay down the necessary conditions that relate to the loan agreement, such as the repayment plan, rate of interest, charges, penalties, and other repercussions that may be incurred in case of the failure to pay for the borrowed sum. A copy of the agreement should be prepared and read thoroughly before signing to ensure all the provisions are as agreed between you and the lender.
5. Funds Disbursement
After signing the agreement, the lender will disburse the funds as planned in the agreement. The loan amount is usually paid directly to the dealer or the seller of the car, so you do not get the cash yourself. Sometimes, especially with private sales, the cash may be forwarded to you by the lender after which you will proceed to pay the seller.
6. Loan Repayment Begins
When the money has been released, your loan starts and the time for the repayment is counted from that period. Your lender will give you details on when your monthly payments are due, the amount to pay, and how to pay the money. Make sure to either use a calendar or go with automatic deductions so that one cannot fail to make the payment on the due date. It can have a detrimental effect on your credit score and may lead to the accrual of more charges.
Key Takeaways
It is important to note that applying for an auto loan is not always a one-step process, and merely submitting your application is the first step. Knowing and understanding each step from the lender’s review to the approval and signing of the loan agreement leads to better decision-making. Moreover, after approval, borrowers should also pay close attention to the terms and conditions of the loan and ensure that they are in a position to repay the amount borrowed. By doing so, you will be on the path of driving your new car while having a good standing financially.
