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Applying for Car Loans [ Car Loans ]
February 4, 2009, 2:49 pm

Know your credit score before you apply for car loans

All financial institutions, credit unions, banks and other lending institutions extend car loans to their customers. Even if you have bad credit scores, you can still apply for car loans easily. There are a number of factors that will influence the lending institution’s decision in giving you a car loan. The first and foremost is your credit rating. The FICO score is used by more than 90% of the banks and credit unions.

The FICO score is a compilation of your bank accounts, loans, mortgages, monthly instalments that haven’t been paid, foreclosures, bankruptcy and such financial transactions. The FICO score can range between 300-850. Those that have a score of less than 600 are termed risky, while those that have scores near 850 enjoy better deals. The best part is that you can improve your credit rating as you pay back your debts.

Getting pre-approved

When applying for a car loan, get pre approved before you approach a dealer or a manufacturer. There are a number of online sites that can help you to know the pre-approved amount. Banks and credit unions can do Pre approval for car loans. Approach the bank where you might have a checking account. They will deduct your monthly expenditures including household expenditure, other loan payments, garnishments, credit card payments and other utility bills. This will show the amount that you afford for a car loan.

Those with bad credit can also apply for car loans

Once you are pre approved for car loans, look at the cars that you can buy. New cars have a better rate of interest than the older used cars. If you have bad credit, you can still apply provided you have gross monthly income of $1500 and can prove that you are employed for at least a year. When applying for car loans you should also be able to prove that you are resident of USA or Canada. You may use the utility bills and credit card bills to prove the same.

Interest rates are dependent on your credit rating as well as your zip codes. Rates also increase 1 point per model year. The older the car, higher is the interest rate for the car loans. Those that have bad credit may be charged between 10-20% interest rates for the same car loan. When applying for car loans, you can also use your trade in for a down payment. There are three things when applying for car loans. The first is the purchase value of the car, the second is the value of the trade in and the third part is the interest rate and down payment. If you aren’t careful, the dealer can lump all the three things together. Always negotiate for the car loans as if you are purchasing in cash.

Those that have bad credit can still apply for car loans. But if they have had repossession in less than 12 months, they need to wait for at least 12 months before they can apply for car loans again. But if the vehicle repossession was part of bankruptcy, then they can apply for car loans. Those that are in Chapter 13 bankruptcy can also apply for car loans. For this they would need to get “Authorization to Incur Debt” from the trustee of the bankruptcy.

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