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Friday, June 8, 2012

How to Avoid Getting Locked into a High Interest Auto Loan

It can be very easy to take the first offer that comes your way when you are shopping for an auto loan, but this is the worst thing you can do. Even if you have a low credit score, there are still options to accepting the first loan offer you receive. You should make it a habit to review your credit report on a regular basis. This will allow you to stay in touch with the information and correct any inaccuracies quickly.
In addition you will know before you start shopping what kind of interest rate you can expect to pay. This information will help you shop better for an auto loan because you will know the factors you are up against. Bad credit is not the only thing that may have an effect on your ability to obtain lower cost auto financing.

Some of the other reasons that may come into view include but are not limited to the following:
  • Lack of financial stability
  • Short or unstable employment
  • High debt to income ratio
  • Not enough credit
  • Low credit score due to combination of factors
  • Lack of banking experience (checking and/or savings account)
Don’t Depend on the Dealer to Shop for Financing
Many people think they have to allow the dealer to secure their financing—or the at least think the dealer can help them find the best deal. While this may be true in some cases, this is not always the case. While it is possible the dealer can secure a lender for those who have less than perfect credit, it is just as possible the potential buyer can secure his own financing with a better interest rate. Do not choose what the dealer offers until you have conducted your own research and are certain dealer financing offers the best auto loan rates.

Conduct Your Own Research
Before you begin shopping for a new car you should conduct some research on local and online lenders. Even those with less than perfect credit may be able to secure a low interest auto loan, especially through one of the many online lenders. Having questionable credit does not mean you have to pay an extremely high rate of interest although you will probably pay more than you would if you had a higher credit score.

Plan to Make a Substantial Down Payment
If you don’t have the resources necessary to secure a low cost auto loan, you can greatly improve your chances by making a substantial down payment on the car you want to buy. The more of an investment you put into the car the better the chances are of finding a lender willing to take a chance on you in spite of your credit history. When you begin with equity in the vehicle, the lender knows if you don’t pay he can recoup his investment through repossession. Another thought the lender has is when you invest in your vehicle you are less likely to become a credit risk.

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