Applying for a Car Loan

The time has come to buy a car, but you don’t exactly have the full amount of purchase lying around. You’re going to need financing for your next vehicle which requires filling out forms to apply for funding from a lender, then picking one with terms that you’re comfortable with.  At North Coast Auto Mall in Cleveland, Ohio, we can help you get financing to buy your next car from us. Meanwhile, here are tips to help you prepare for applying for a car loan.

Check Your Credit Rating First

Car loan spelled out on wooden tiles

Image via Flickr by aronbaker2

Just about anyone can get an auto loan, even if their credit rating is a little beaten up. Everyone makes mistakes, and life has a way of throwing curveballs when least expected. Auto loan lenders recognize this which means they won’t immediately say no to a borrower with a bad credit history. What you may not realize is that you can clear up your credit history by going over your credit report and finding incorrect marks against your credit, disputing items that should have fallen off after seven years, and looking for issues that belong to someone else with a similar name to yours.

What Goes Into a Credit Score?

Your credit score is a measure of your trustworthiness to a lender. A high credit score indicates that you are responsible with your finances and have made it a point to repay your creditors, along with having little to no balances on your credit cards.

Having a good credit score shows that you’ve made mistakes, but have made it a point to do better with repayments. It can also be an indicator that you’re keeping too high of a balance on your credit cards even if you’ve maintained good payment hygiene.

A fair-to-bad credit score shows that you have too many credit cards with high credit line usage, have missed multiple payments in the past few months, and have a history of late or missed payments.

Why Should I Be Concerned With My Credit Score?

Lenders loan money to borrowers with the expectation they’ll get their money repaid along with interest. The lower your credit score, the higher the interest you pay.

The reason for this comes down to the fact the lender is taking a risk by lending you money. A poor credit score shows that you’re a higher risk than someone who has a good credit score. You’re going to get a higher rate of interest from the lender and potentially higher fees for taking out the loan as the lender wants to make sure they’re going to get repaid for trusting you with borrowed money.

Having a bad credit score doesn’t prevent you from getting funds to buy a car, but you will pay more for the car by the time you retire the loan. It can also keep you from buying the car you’re looking at because the added interest increases your monthly payment.

What Should I Do if I Have Errors on My Report?

If you uncover errors on your credit report, you should dispute them as soon as possible. The major credit agencies, Equifax, Transunion, and Experian, all have straightforward dispute processes. Don’t be surprised if the agencies require you to provide more information to prove that you’re not responsible for the error. This can be a tedious process, but it pays off in the long run with better interest rates and repayment options.

I’ve Had Issues in the Past Making Payments. What Now?

First off, don’t panic. You can still get a car loan even if you’ve gotten into trouble with paying your creditors in the past. Every lender has different criteria for approving borrowers, and some are more likely to approve someone with bad credit than others. Come talk to us at North Coast Auto Mall in Cleveland about your need for a car loan and learn about the lending options we can help you with.

Figure Out How Much Car You Can Afford

The formula for a car loan consists of principal plus interest times the length of the loan. All of these factors play a role in the final monthly payment you’ll make on your car over the life of the loan. The longer the loan, the less you pay per month, but you may not want to carry a payment for more than a few years. On the other hand, you may prefer to get a longer loan term in order to keep your payments low and pay ahead to reduce the principal. The longer loan term gives you a buffer if your financial situation changes and you need to keep your expenses to a minimum.

Does Getting a Car Loan Improve My Credit Score?

Your credit score may go down from the time you bought the car, but it does recover. When you apply for an auto loan, your credit profile undergoes what is known as a “hard pull”. That is, the lender wants to see your credit profile in full. Hard pulls indicate that you’re looking to borrow money, and multiple hard pulls show up as multiple inquiries for borrowing even though it’s multiple lenders looking at your score for the same purpose. However, these inquiries fade out over time and your score recovers.

Your score may also suffer for a period of time because the auto loan is a large amount of money that you’ve borrowed all at once. As you repay the loan, your score improves. Maintain your payments in a timely manner, and you can greatly improve your score the longer you own the car. This is especially beneficial if you’ve had bad credit and are seeking to improve it. Paying down an auto loan according to the agreement always boosts your credit score.

Contact us at North Coast Auto Mall – Cleveland today to learn more about how we can help you apply for a car loan. Our finance department is here to answer your questions and concerns prior to filling out an application.