It's simple to get a loan for a car. But it might be harder to get an auto loan with a low interest rate. When you borrow money to buy something, the interest rate you get makes a big difference.
If your credit isn't good, a lender will probably charge you a higher rate. In some cases, this could make the monthly mortgage payments a lot higher. If you follow the tips below when shopping for a new or used car, you will have a better chance of getting an auto loan with a low rate.
When should you apply for an auto loan?
Timing is very important when getting an auto loan. Most of the time, lenders like to see applicants who are stable. So, having steady work is a must. Don't try to get an auto loan until you've been working for your current company for at least six months. If you usually change jobs every two to three months, an auto loan lender might think you're a risky borrower and raise your rate.
Start a credit record
Before getting a loan for a house or car, it will help you if you have a credit history. If you have stayed on good terms with a previous creditor, auto loan lenders are more likely to offer you lower rates.
It's easy to build a good credit history. You can do this by applying for a major credit card, a gas card, or a retail credit card. When you get the card, use it to buy a few things and pay off the balance every month. This will look good on your credit report, and your credit score will go up quickly.
Keep a low balance on your credit card.
Lenders will look at a loan applicant's credit history, but they will also figure out if the person can afford a certain car. If you have a lot of debt, you might not be able to buy the car of your dreams. So, try to pay down your debts before you apply for a car loan. If you have less debt, you'll be able to spend more and qualify for prime rates.
At least two years must pass after a bankruptcy is filed.
If you have recently filed for bankruptcy or have done so in the past, try to wait at least two years before applying for an auto loan. Lenders think you are a big credit risk after you have gone bankrupt. You might be able to get a loan, but the interest rate could be as high as 18 percent.
Instead, work on getting your credit history back on track. Apply for a credit card for people with bad credit as soon as you file for bankruptcy. Try to open at least three new lines of credit if you can. By doing this, you can get back on track with your credit history and raise your credit score. After 24 months, you should be able to get a good rate on an auto loan.
