Car Credit

For most consumers, the purchase of an automobile represents the second most expensive thing they will ever finance. Because of this, realizing the importance that car credit plays in the overall buying process can potentially save you hundreds or even thousands of dollars in interest expenses over the life of the loan.

Here are some tips to getting the most out of your hard-earned dollars:

1. Know, ahead of time, your credit score and what’s in your credit report.

Your credit score will determine the interest rate of your loan. The higher your credit score, the better the interest rate you’ll receive. You should obtain a copy of your credit report at least six months prior to applying for a loan. This will give you time to correct any errors on your report.

There are three major credit bureaus that are used by car credit lenders in the United States: TransUnion, Experian and Equifax. It’s also a good idea, if you’ll be applying for car credit, to get a credit report from each of the three bureaus, since there’s a good chance that the information contained in each one will be slightly different. In addition to the credit bureaus, there are a number of companies that offer the ability to see all three credit reports at once. One of the best can be found at http://freecreditreports360.com.

In addition to your credit reports, you should also obtain your credit score (also known as a FICO score) at the same time – again, freecreditreports360.com can furnish you with these scores.

2. Be aware of the total cost of the loan.

While the interest rate is an important factor in car credit, the loan term (duration) also determines what your monthly payment will be and how much the total cost of your vehicle will be. A shorter term means a higher payment, but it also results in a lower overall cost for your car, since interest payments will be less. A longer term will lower your monthly payment, but it will also increase the total purchase price, since you will be paying more in interest.

A good rule of thumb is to keep the loan term as short as possible while still keeping the monthly payments affordable.

3. Get your best rate before you start shopping for a car

From a financial standpoint, a good car credit interest rate is just as important as finding the right vehicle. Check with your local bank and credit union before you visit the dealer to determine what you qualify for. Also remember, however, that some of the best interest rates are offered by the captive finance companies (such as Ford Motor Credit and GMAC) that only do business through their new car dealers. So even though you may have your best rate from the bank, there’s also a good chance that the dealer may be able to beat that rate.

If you do qualify for one of these programs, be sure it’s on the vehicle you want (some programs limit super low finance rates to certain vehicles the manufacturer wants to move off dealer lots) and that it results in a monthly payment that you can afford (many times these rates are for shorter terms and may result in higher monthly payments, even though the rate may be as low as 0%).