Auto Financing and Making the Most of Your Credit

Are you looking for a new car? Chances are that you’ll be financing that new vehicle. The rising cost of new vehicles has made it increasingly difficult for consumers to purchase a car outright. Financing is a valuable tool that allows you to drive the car that you need and pay for it over time. However, not all lenders are created equal. Likewise, not all consumers are given the same interest rate on their auto loan. Being an informed consumer puts the power in your hands. By knowing the game being played, you can control that game. Here are a few tips to help you maximize your buying experience and get the best loan possible.

o Know Thy Self – When you apply for a loan, the first thing that prospective lender does is pull a copy of your credit report. This report (and the associated credit score) determines the loan that you will get, or even if you will get a loan. Knowing what the lender will see will take the surprise out of the process. You are entitled to a free copy of your credit report each year. Use this tool to your advantage. If your report is less than stellar, take steps on your own, such as paying off debts, remaining current on payments and negotiating payment arrangements with delinquent accounts.

o What’s Your Score – While your credit report is an incredibly valuable tool, you’ll also need your credit score. This is not included in the credit report, which comes as a surprise to many consumers. Be warned; you will have to pay for you credit score from each of the credit bureaus.

o Know Thy Friends – Know the lenders with whom you are applying. Applying for an auto loan blindly is an easy way to be taken for a ride. Apply with prime lenders first, as you will get the best deals through them. Only if you have exhausted the pool of prime lenders, should you consider using a subprime lender. In addition, there are other tools at your disposal. If you are a member of a credit union, apply through them. If you have been a long-standing member of a local bank, consult the loan officer. Never limit your options to auto lenders.

o Know Thy Enemy – In this case, the enemy is the dealership. While they provide the automobile that you need, they mask the true cost of the vehicle behind a screen of dollar signs. By getting the consumer to focus solely on the monthly payments, they hide the true cost of the vehicle. Financing through a dealership may be a viable option, but it is often a poor decision. Dealer-financed loans are frequently some of the most expensive in the industry. Find out what fees (in addition to tax, tag and title) are listed in the contract, as well as the interest rate charged by the F&I office. By knowing their tactics, you can avoid being hit with sticker shock when you sign your loan papers.