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Credit Scores and Car Loans

by Traci Benoit
March 21, 2009

Getting a car loan is greatly impacted by your credit score. The rate you are able to get for your auto financing is largely a result of your score, as are your chances of being approved for a loan at all. A credit score that has been impacted by a few late payments or a defaulted credit account can often mean the difference between getting a car loan at a good rate and being denied for any financing.

Your personal credit report is full of details about your credit history. There are three main companies that keep these reports: Experian, Equifax and Trans-Union. All three of these companies send your credit history information to any lender who requests them when you apply for a loan or other credit. The information they send to lenders tells them how much risk you would present to them if they were to give you the loan. If you have a poor credit history, a lender will see that there is a lot of risk involved with lending you money. This results in a higher interest rate to cover that risk. But often, it results in simply being denied for the loan.

With a better credit rating, the lender has less risk involved in the transaction. With a better chance of being paid back for the money loaned, the lender can afford to charge a smaller interest rate and will still make money on the deal. This makes it extremely beneficial to have the best interest rate possible in order to be eligible for better interest rates and to be able to borrow money when you need to purchase a car.

While the benefits of having good credit and the negative effects of having bad credit are something that many consumers are familiar with, what isn't as well known is that many times, the interest rate you are offered is negotiable. You don't necessarily have to accept the first interest rate offered to you on a car loan. You can counteroffer with a smaller rate and see if the lender is willing to deal. If you stick to the rate you want, you may be able to get it from your lender.

Before you ask for financing at a car dealership, make sure you are familiar with your credit score and that you know what's on your credit report. One helpful way of getting a better financing rate is to get your own copy of your credit report and then to bring that to the dealership with you. This will allow you to see what positives and negatives are on your report and to combat a bad interest rate with information from your report. This can help you to negotiate a better rate with the dealership. If there is no reason for a high interest rate, you will be able to point out your positive credit history. If your credit is average or has a few negatives, you can still use the report to point out the good aspects of your credit history.

Financing a new car is sometimes the most confusing aspect of the whole buying process. Autotropolis shows you what options you have in financing a new car as well as showing you what type of rates and payments you should expect.


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