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What Should I Know About Getting a Car Loan?

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  • Written By: Carol Francois
  • Edited By: Bronwyn Harris
  • Last Modified Date: 17 August 2016
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    Conjecture Corporation
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Getting a car loan is an important first step towards the goal of car ownership. A car loan is a financing tool used to purchase a car or truck. Banks, finance companies and some automotive companies, through their own finance companies, offer these types of loans.

There are four things you need to know about getting a car loan: how to qualify, whom to ask, legal obligations, and insurance requirements. A car loan is a secured loan, meaning that the money is provided to you for the purchase of a specific vehicle. The loan provider uses the vehicle as security for your loan by placing a lien on it. A lien is a legal document that assigns full ownership rights to the lien holder. If you sell your vehicle or are in an accident, the lien holder must be notified and they have legal rights to receive full payment for the loan from the proceeds.

Qualification for a car loan is based on personal credit rating, employment history, current debt ratio and type of vehicle. Each company can set their own criteria for getting a car loan, but all perform the same analysis. All these items are critical factors in determining if you qualify for a car loan and the terms under which the loan is provided.

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There are wide ranges of companies that provide car loans. The banks are the most conservative, and should only be approached if you have excellent credit, a low debt ratio and steady employment history. If you are missing any of these factors, you should approach a finance company. These companies charge a higher interest rate, or may require a larger down payment, but they specialize in customers who are not able to obtain financing from a bank.

When you are getting a car loan, you will need to sign several legal documents. These papers indicate your agreement to the terms and conditions of the loan. There is also a statement that all the information you have provided is accurate and up to date. In additional to the obligation to pay the loan, you are also required to maintain auto insurance coverage for the length of the loan.

In order to provide you with a car loan, all financing companies have insurance coverage requirements. The vast majority of firms will require comprehensive coverage. Comprehensive coverage is an enhanced insurance coverage for damage to your vehicle. This type of coverage is more expensive than collision, which provides protection for property and other drivers.

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