You don’t have to pay a mint for a car loan.
You have seen the advertisements for low interest rate auto loans and wonder if you qualify. Car financing rates of under five percent are common today, but are typically available only to those with the best credit ratings. You can get a low interest rate car loan by taking the following steps.
Visit MyFico.com to obtain your three-digit credit score. Pay the fee, plug in your personal information and review your score. If your score is 700 or higher than skip to the fourth step. If it is in the 600s range or lower, then move on to the next step.
Review Your Credit Reports
Your credit score is based largely on the information found in your credit reports. Three credit bureaus collect information about your finances, job history, your spending habits and other personal information. With scads of data coming in, some of that information may be old or wrong.
Visit AnnualCreditReport.com to obtain your reports from Experian, Equifax and TransUnion. Your reports are issued free through this site and can be obtained once annually at no charge to you.
Clean Up Your Credit
Examine your credit reports carefully. If information in a report is incorrect, notify the respective credit bureau. Sometimes, a credit bureau will claim that you have made late payments or have a line of credit open that does not belong to you. Wrong information should be brought to the attention of the credit bureau and corrected.
Once notified, the credit bureau has 30 days to address your query or automatically expunge that information from your files. You can request a follow up credit report for free once the corrections have been made.
Car Loan: Apply For Credit
It may take up to 60 days for your credit score to reflect the corrected information. Your score should rise and if it tops 700, you should qualify for a low interest rate car loan.
Keep in mind, however, that there are other parameters creditors consider including your current income and your ability to repay a loan. If your score remains low, continue to work on raising it before applying for new credit.
Talk With Your Lender
You can also talk directly with a lender before applying for credit. This can be useful if you wonder if you will be approved for a car loan and you don’t want to risk rejection. Your lender, which can be your current banker, a credit union representative or other financial professional, can offer guidance on what interest rate you will pay on a new car loan. For instance, you may be able to garner a better rate if you put more money down or settle for a shorter-term loan such as 36 months instead of 48 or 60 months.
If your credit score is below 600, indeed if it is 580 or below, then you have bad credit. At this point, it will take you extensive work to raise your credit score, likely taking many months to well over a year to reach a favorable credit rating. You may still be eligible for a bad credit car loan, but do not expect to receive a low interest rate car loan if your credit is bad.
Typically, bad credit car loans carry a rate of 10 percent or higher, well above the prevailing rate for consumers with excellent credit.Always know your credit score and understand how that score can affect your ability to secure new credit. A low interest rate car loan may be within your reach, provided that you are willing to work on fixing lingering credit problems.
See Also — Credit Clean Up Before You Buy Your Next Car