When you think about getting a car loan, the first things that come to mind are the monthly payments and the down payment. But, have you also thought about the interest rates? You should, because they can either save you thousands of dollars or cost you thousands.
If you want to get a car loan, don't try to get any other kind of credit for the next six months to a year. Every time you try to get credit, your FICO score goes down. And if you ask for credit too many times in a short amount of time, the lending company might start to be suspicious of you. They might wonder why you're asking for so much credit and be less likely to give you a loan for a car. The better your FICO score, the less you will have to pay in interest. But if your FICO score is on the low side, you will have to pay more in interest if you do get a loan.
Get a copy of your credit report from each of the three credit bureaus before you apply for a car loan. These three are Equifax, Experian, and TransUnion. Lenders often use some of the information in your credit report to figure out what your interest rates will be. It is very important that everything in your credit file is correct, including your name, address, social security number, place of employment, and payment history on all of your credit accounts. If you find something wrong, send a letter to all three credit bureaus right away and dispute the information.
If you want to get a new car loan, make sure you pay as much as you can toward paying off your existing debt before you apply. If your ratio of debt to income is too high, the bank may think you won't be able to pay back the loan. So, if you can, pay off your credit cards. If you have any charge-offs or accounts that have been sent to a collection agency, pay them off right away and, if at all possible, get this information taken off your credit report. If you have bad information in your credit file, you might not be able to get a loan for a car. But if you get the loan, the interest rate will be higher over the life of the loan. The same is true if you have filed for bankruptcy or had other credit problems in the past, but many car loan companies are eager to help you find a loan that fits your budget. Many car dealerships advertise deals for people with bad credit and may be able to work directly with a lender to get financing approved.
Even if you don't need a car loan right away, learning about interest rates and how they are set could save you a lot of money in the long run. In the end, the more likely the lender thinks it is that you will pay back the car loan, the lower your interest rate will be. Customers with high interest rates end up paying thousands of dollars more than those with low rates.
