CAR BUYING AND YOUR CREDIT - THE BASICS
Information is king when obtaining an automobile loan. This is even more important if the consumer has less than perfect credit. The amount of the loan, the interest rate and the term you qualify for are all determined by your past credit history. The difference between an auto loan with excellent credit and a sub prime loan can be thousands of dollars. The key is to pay the correct rate you have earned as a borrower, based on your prior credit history. To truly know what you should be paying requires some homework on the consumer’s part before they head to the dealership. This is providing there is some past credit history. If not, see “AUTO FINANCING FOR THE 1ST TIME BUYER” section for the information you will need to know to get financed.
1. Know what your credit score is and what information is showing on you credit report.
It’s a good idea to obtain a copy of your credit report. This is easier than most people realize.
You can request a copy from the three major credit agencies either on line or over the phone. The credit agencies charge for the information but it is well worth the modest fee to obtain it. The savings over the life of the loan could be substantial. Here is the credit agencies’ information.
Equifax: 800-685-1111, www.equifax.com
Experian: 888-397-3742, www.experian.com
TransUnion: 800-916-8800, www.transunion.com
Look the report over closely. There are four types of information on all credit reports. Personal information, credit information, public records and inquiries. Any errors in any of this information can cause problems once the approval process begins, so contact the credit agencies immediately of any changes you feel you are entitled. The credit agencies will inform you of the procedures you will need to follow to correct your situation.
Personal information: This includes name, address, phone number, social security number, and places of employment.
Credit information: The history of your prior credit performance both good and poor. If the credit was paid “as agreed” it will stay on the report for years finally falling off due to lack of activity seven years from the last reporting date. If the credit is derogatory the blemish will stay on your report for seven years from the last date it was reported as less than satisfactory. Credit card information as well as all car loans fall into this category.
Public information: Charge offs, bankruptcies, unpaid child support, tax liens and monetary judgments will fall into this category. This information, if derogatory, will stay on your credit report for 10 years.
Inquiries: Includes the names of all those who requested and received copies of your credit reports.
As important as this information is, there is more to buying a car with less than perfect credit than just your credit score. See TIPS FOR BUYING A CAR WITH SUPRIME CREDIT.
2 Set a budget before you go shop. Most experts feel that your car payment and related expenses should not exceed 20% of your net monthly income. Once at the dealership the emotions of the buying experience can cause some consumers to purchase more than they intended to.
3 Have your down payment amount set in advance. Realize what you’re capable of and set that as your limit.
4 If you have a trade –in, estimate what your trade’s equity is. This is considered the same as down payment if you don’t have a balance on it. If there is a balance, it has to be subtracted from the value of the car before determining its value. Websites like Edmunds.com will give you help in determining what the dealer will give you for your trade. However, if you go to one of these websites realize you need to look at “:trade-in” value not “book value” which is used to determine how much the bank will usually finance on a unit. |
