The Ultimate Applying for a Car Loan Quiz

By: Staff

4 Min Quiz

Image: refer to hsw

About This Quiz

You want to buy a car and the only option available to you is to apply for a car loan. What do you need to know? What documentation do you need to provide? Whom do you turn to? Turn your attention to this car loan quiz and see whether you know all the answers.

Why do credit unions usually have good interest rates?

Credit unions are typically non-profits. Thus they have low operating costs and, therefore, good interest rates.


If you want to apply for a car loan, what are the advantages in approaching banks?

Banks will usually cater to individuals with good credit, to whom they offer better interest rates.


You own a home and want to take out a home-equity loan. Will it be tax deductible?

It is likely to be tax deductible, but not guaranteed to be so.


With regard to a lien, who has the first right to the asset until the lien is paid off?

The one who holds first rights to the asset until the lien is paid off is the lender or the lien holder.


Your credit score or FICO score is an indicator of your ability to pay off the loan. What is a prime FICO score?

A prime (top-tier) FICO score is between 700 and 850.


Where can you establish your own credit report?

Your best bet is from credit bureaus, such as Trans Union, Equifax and Experian.


If you have a low credit score, what can you do about it?

Among other things, you can check that no errors were made and improve your financial behavior.


Aside from your credit score, what other factors might be taken into account to establish your credit worthiness?

Your credit worthiness is made up of your credit score as well as your profession, home ownership and your proof of employment.


What percentage of your salary is the accepted maximum for spending on your vehicles?

You shouldn't spend more than 20% of your income on vehicles -- that's after taxes.


Why is depreciation a factor to consider when taking a car loan?

Depreciation is the inevitable fate of your car; as it ages, it depreciates in value and this has implications for your overall ownership costs.


How would a federal tax credit be of use to you in taking a car loan?

There may be a federal tax credit on purchasing certain cars, so it's useful to find out if this is so regarding the car you wish to purchase.


Most buyers offer a down payment of about 5%. Does this at least cover the sales tax and associated fees?

Five percent usually doesn't even cover the sales tax or fees. That's why it's better to offer a bigger down payment of up to 20%.


If you are buying a car from a private seller who does not have an outstanding loan, what does the seller need to have?

The seller simply needs access to the title so that he can transfer ownership to you.


You want to buy a car from a private seller who's still paying off his own car loan. What happens now?

The private seller has to finish paying off his own loan, but this doesn't hold up the sale. It does, however, hold up the transfer of the title.


What sort of documentation might a potential lender request?

A potential lender might request to see your proof of income, proof of residence and your credit and banking history.


In your car loan papers, there is some text about binding arbitration. What might this mean?

If there is some blurb about binding arbitration, it may mean that you won't be allowed to go to a court if there is any dispute.


What does the annual percentage rate (APR) include?

The APR is made up of the base interest rate and other associated loan costs.


What happens to your loan when you refinance?

The new organization pays off your loan, receives the title and is now your new address for future payments.


Which of these would it be wise to ask your lending company?

It's important to arm yourself with as much foreknowledge as possible. One wise thing to ask is if you can make payments early without any penalty.


Under what circumstances would you consider refinancing?

You'd probably want to consider refinancing if you can get a lower interest rate or if you owe more than the car is worth.


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