When it comes to purchasing a new vehicle, it's always ideal to pay with cash. By paying with cash, you have the ability to negotiate a lower price for your vehicle. You can also avoid all of the high interest fees that are charged by lenders. If you don't have sufficient cash available to purchase a car, all hope is not lost. The next option to consider is financing.
Build Your Credit
The first order of business, before seeking car financing, is to build your credit score. The best way to build your credit score is to ensure that all of your bills are paid on time. Order a copy of your credit report from each of the three major consumer credit report bureaus. Review each report for negative unpaid accounts. If there are unpaid accounts, contact the creditor and make arrangements to pay off those accounts. Each negative account you pay off can improve your credit score. If you possess credit cards, carry a low balance on those cards. High balances will look bad on your credit report. If you don't have any credit, it is just as bad as having poor credit. This is due to the fact that potential lenders are not able to assess whether you are a credit risk. Therefore, it is best to open at least one line of credit before seeking car financing.
Visit the Bank
If you have established a good relationship with a local bank, the bank may approve you for a car loan. If you are a member of a credit union, that's even better. A credit union is a better choice for financing, due to the fact that credit unions charge lower interest rates for car loans. Regardless of whether you choose a bank or credit union for financing, your credit worthiness will be evaluated. To evaluate your credit worthiness, the financial institution must request a copy of your consumer credit report. If your credit score is lower than 680, your chances of being approved for financing significantly decrease.
Family and Friends
If the bank or credit union denies your loan application, all is not lost. Often, the bank will approve your rejected application if you have a cosigner. A cosigner is an individual who agrees to be financially responsible if you default on the loan. The financial stability of the cosigner will be evaluated by the bank, as well as his credit worthiness. One way to find a cosigner is to ask close family and friends. Only ask a family member or friend to cosign your loan if you are 100 percent certain that you are able to pay back the loan, according to the loan agreement.
Consider Leasing
If you have a sizable down payment (a few thousand dollars) toward the car you want, the lender may allow you to lease the car. By leasing the vehicle, you still get a new car. However, you will have to return the car to the dealership when the lease agreement expires. In most cases, at the end of the lease agreement, you also have the option of purchasing the vehicle. By making all of your payments on time during the lease, you increase your chances of being approved for lender financing to purchase the leased vehicle.
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