Understanding Credit and Interest

When you first think about buying a car one of the first things that probably pops into your mind is your credit rating and whether or not you think you can afford it. In general, however, unless you've been extraordinarily negligent with your bills recently or have filed bankruptcy within the last six months, you can get a car loan for a new or used vehicle as long as your income is sufficient to carry the new debt. The interest rate on a car loan may be significantly higher if you haven't been properly managing your finances well, but that doesn't mean that you cannot get a car loan at all.

There are steps you can take if your credit hasn't been doing well and you have a low credit score, to improve situations before you apply for your auto loan. Some of these steps can be managed in just a few days, while others will take several months and should be started on at least one half year before you are planning to buy.

• Get your free credit report - When you are thinking about buying a new car, it makes perfect sense to get the annual free credit report that you are entitled to according to federal law. You can use this free report to verify the status of your credit standing and get a better idea of what type of loan you will be eligible for.
• Pay off the "little things" - If your credit report lists that you have some delinquencies recently or any accounts in collections, now is the time to take care of those by paying them off and seeing to it that you have no delinquencies that will be considered recent at the time that you apply for the loan (within the last 3-6 months).

Ramp-up the Down Payment

If your credit is less than perfect, another way to see to it that you get not only a basic car loan, but get a car loan you can really live with and respect as far as interest rate and loan terms are concerned, is to significantly increase the amount of down payment you will put into the car up front. This works not only in a mathematical sense but also in a psychological and underwriting sense in that the higher the percentage of your down payment is compared to the cost of your car, the more flexible the lender will be in giving you favorable terms. So just because your credit isn't so hot, it doesn't mean that you have to settle for a high-interest loan that is constructed to drain your finances as quickly as possible.

Adjust your loan terms

In addition to the interest amount of your loan, you can also negotiate the length of the loan which can significantly affect not only how much you will have to pay every month, but also change how much you will pay for the car when everything is said and done in principal and interest. Remember that the longer you have a loan, the more you will pay for it in interest rates.

If you are unsure about anything so far, read the frequently asked questions for more information.