Applying for a car loan online is convenient and it might seem like the best and quickest way to get a loan. With some research, you may be able to get a car loan that suits your needs through an online lender.
That said, there are some potential pitfalls to applying for an online car loan. At Addition Financial, we think it’s important to educate our members about all lending options, so they can understand the benefits of working with us. Here are six considerations to keep in mind before you apply for a car loan online.
#1: You’ll Need the Same Documentation Online or In-person
The first thing to keep in mind is that you will need to have your ducks in a row before you start filling out applications. You’ll need the same documentation you would need if you were applying for a loan in person, including:
- Proof of employment and income
- Proof of residence
- Proof of insurance
- Details about the vehicle you want to buy, including the year, make, model and VIN number
- If you’re applying for loan refinancing, you’ll need the status of your current loan, including a payoff amount
You can streamline the application process by having these items ready to go before you start to apply.
#2: Apply with More Than One Lender
One of the benefits of applying for an online car loan is that you can easily compare and contrast the quotes you get so you can be sure that you’re getting the best deal possible. That means you’ll need to settle in and apply with three to five lenders.
If you’re worried about how applying with multiple lenders will impact your credit score, here’s a tip to keep in mind: multiple queries about the same type of loan within a two-week period count as one query for the purposes of calculating your credit score. That’s an incentive to put your applications in as close to the same time as possible.
#3: Read the Fine Print Regarding Interest Rates
Some lenders offer lower interest rates online than they offer for in-person applications, but that’s not true of every lender. Make sure you understand what interest rate you’re getting and – this is important – whether there are any conditions attached to it.
One of the most common conditions of online car loans is that the quoted interest rate is contingent upon you agreeing to automated electronic payments each month. Opting out of the automatic payment option may increase your interest rate by as much as half a percentage point. That’s why it’s important to read the fine print.
#4: Pay Attention to the Total Cost of the Loan
While it is possible to apply for an online car loan with a traditional bank or a credit union, there are some non-traditional lenders in the mix, too. For that reason, it’s important to consider the total cost of the loan – including all fees and penalties – before you commit.
We’ve seen some online loans that looked like good deals on the surface, but included thousands of dollars in hidden fees. Keep in mind that a loan is a legal transaction and make sure you fully understand the financial obligations you’re taking on before you sign on the dotted line.
#5: Be Mindful of the Loan Term
One of the ways unscrupulous lenders can attract borrowers is by emphasizing their low interest rates, but downplaying fees and expenses, or even spreading them over a longer loan term. Extending a term from 60 to 72 months can make a huge difference in your total financial commitment.
Even if your first concern is the amount of your monthly payment, keep the big picture in mind. Don’t agree to a loan without also calculating the full cost of the loan. If you can afford a shorter loan term, that’s your best bet because it will save you money in the long run.
#6: Use Online Loans to Avoid Selling Tactics
The final consideration is that online loan shopping can help you go into a dealership with a firm idea of what’s available to you as a buyer. Sometimes, dealers offer loans with 0% APR (annual percentage rate), but that may not be the best deal. Many times, you'd be better off applying a manufacturer’s rebate to the sales price to reduce the amount you have to borrow. If you take 0% APR, you'll have to waive the rebate to get the lower interest rate.
Online car loans don’t necessarily offer the best rates, but shopping online is a good way to get a feel for interest rates and fees – and in some cases, they may be your best bet for buying or refinancing a car.
To learn about Addition Financial’s competitive car loans, please click here.
Posted on Sep 25, 2018
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