Buying an expensive item that requires a loan can be a stressful, especially if you've had credit problems in the past. Many people require financing to purchase of a car. While other people are concerned about getting the best rate possible, you may be worried whether you can obtain a loan at all. However, there are actions you can take to help get the loan. This article focuses on financing the purchase of a car.
Financing Tiers
Some car advertisements feature promotions such as zero percent financing, cash back and employee pricing. However, these promotions usually are available only to people with high credit scores. The fine print typically notes that these terms are for Tier A customers, which are about half of all applicants, according to MSN Money. According to a study by the Consumer Bankers Association reported by MSN Money, Tier A applicants usually have credit scores above 720. Tier B applicants' scores are between 680 and 720, and the remaining tiers have lower credit scores. The lowest tier, Tier E, can expect to pay as much as 30 percent interest on its car loans.
Know Your Score
Before you go to the dealer, check your score so you know where you stand, which can help you negotiate. You can obtain your credit report through AnnualCreditReport.com, which grants you one free copy of your credit report each year from each of the three major credit bureaus -- Equifax, Experian and TransUnion. The credit report does not include a credit score, however. You can buy your score from the credit bureau after requesting your free report, but it's not necessarily the score that will be used by the dealership. Most car dealers use the FICO score, which is available through MyFICO. You can sign up for a free trial and get your FICO score. This requires you to enter your credit card information, and you will be charged if you don't terminate your subscription within a certain time frame.
Credit Disputes
When you obtain a copy of your credit report, you can review it for inaccuracies. The CBS News website reported in 2004 that a study conducted by the National Association of State Public Interest Research Groups discovered that 79 percent of all credit reports contain inaccurate information, and your credit score might be negatively affected as a result. If you detect errors in your credit report, you can file disputes online with the three major credit bureaus, or you can write letters to the individual creditors. Because your credit score might change during and after the dispute, TransUnion recommends that you not shop for an auto loan during the dispute process.
Getting a Loan
After you've learned your credit score and cleaned up your credit file, you can attempt to get a car loan. Apply for loans from multiple sources. Although each application for credit adds an inquiry to your credit report that can lower your score slightly, all auto-related inquiries within a 14-day period are rolled into one inquiry. That's because the credit scoring formula takes into account that you are shopping for a single loan. Also, don't immediately settle for what the dealer tells you. Try securing a loan through a credit union or bank, as you may be able to get a better rate.
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