Lenders usually require the car to be covered by insurance, as this protects the security (the car) in in the event of an accident. Lenders will also give important consideration to your credit standing as reflected in your credit report. Those with a bad credit standing will usually incur higher interest rates on their loans as compared to those with good credit standing.
When you buy a used car, the cost of the car is less than for a new one so the amount you will borrow will also be less, as will your repayments. If you pay your auto loan repayments on time, you will build a good credit rating, which will let you borrow more at a lower interest rate next time. Lenders do not really care if you purchase a brand new or used car or have borrowed the finance. As long as you make the necessary monthly payments on time then you are of good credit standing in their eyes.
Having an auto loan is actually a useful way to establish a good credit reputation.
As used auto loans are usually for a lower amount than those for new cars, this could be helpful in making your loan payments on time. You can build your credit rating through an auto loan. A good credit standing will qualify you to buy more expensive items later, such as a new car or a house.
With the good credit rating you have established in your auto loan, you will also be able to obtain lower interest rates should you apply for a loan again. This is because a good credit standing will qualify you for the normal or lower interest rates usually between 2% to 15%. For those with bad credit standing, these rates could go up to as much as 30%.
To have your auto loan approved, you need to get a credit report check done and also meet requirements for the vehicle, like mileage, good appearance and road worthiness. These factors will enable the lender to determine what the vehicle is worth.
Lending institutions usually require that you furnish the following documents before applying:
Proof of income which can be verified
Proof of residence which can be verified
Has good credit history
Valid driver’s license
Valid title to the automobile in cases of trade-in
STIPS or additional items such as tax returns, phone bills, bank statements and others