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How to Choose a Car that Fits your Needs and your Credit!

Posted on August 20, 2014 at 5:25 PM

How to Choose a Car that Fits your Needs and your Credit!
by Joy Mali

Choosing the right car can be a difficult decision to make, especially when you start to consider your budget and your credit. Securing an auto loan and a credit score go hand in hand. The better your credit score, the better loan you can get. Knowing your credit score can help you make the right decision when it comes to buying a car. Before you buy a car, you should think about your financial health and what you really need in a new car.


Know Your Credit Score before You Shop


The best way to go car shopping is with the knowledge that you are preapproved to get your auto loan. It can be quite embarrassing to go to the car dealer, take a test drive, and go through the haggling that comes with buying a new car, only to find that you can't get a car loan or that your rate is going to be very high because of your bad credit score. Checking your credit score range about six months before you plan to apply for a loan is ideal because this will give you plenty of time to correct any errors or change any habits that may be keeping your credit score down.


If you have a strong credit score, you should be able to secure a great loan with the best rate possible. Having a credit score of 720 or above will pretty much guarantee the best rate for an auto loan. On the other hand, if your credit score is in the low 500s, you should expect to see a loan rate about twice the lowest rates offered. The minimum credit score for an auto loan, or any loan for that matter, is typically 500. If you have a score lower than 500, you have bad credit that makes lenders think you aren't worth the risk. Still, even with the worst possible credit, you may be able to find a loan. You should just expect very high rates and some rather outrageous terms for the loan. Whatever you are looking for in a car, it's important to understand that lenders determine auto loan rates by credit score. Great scores lead to great rates, and bad scores give you the worst rates.


Assess Your Auto Needs


Besides asking yourself what is a good credit score to buy the car you want, you also should consider what you really need in a car. This is especially true if you have a credit score in a lower range. A low credit score may indicate that you are not handling your debt well. If this is the case, consider buying a car that won't add much to your debt level. Make sure that the monthly payments are manageable. Rather than going for the expensive model or the dream car, look for something that is more sensible but will still fit your daily driving habits.


You may have to adjust your needs based on your credit score. If you are barely at the minimum credit score for an auto loan, you may need to buy a smaller car or even an older car than you had originally planned. You may have to pass on some special features that are important to you. Whatever you end up doing when you pick the right car for you, you have to make sure it fits in your budget and that you will be able to make all of the payments in full each month.


Using an Auto Loan to Improve Your Credit Score


If you do have bad credit, you can actually use an auto loan to help improve your credit score. An auto loan and credit score can work together. When you take out the auto loan, be sure you make all of the monthly payments on time. By doing this, you will be adding an account in good standing to your credit score, and this will show potential lenders that you are worth the lending risk. If possible, you could even pay down the balance early, as long as there are no penalties for doing so. Auto loans typically do not carry any penalties for an early payoff. In the long run, you always save money by taking out the smallest loan possible and paying it off as quickly as you can.


Whenever you are in the market for a new car, you should always make an effort to figure out what your credit score is well in advance. This will help you make adjustments so that when it is time to apply for the loan, you can get the best loan rate possible. It's also important to evaluate what your needs are. If you have bad credit, you should probably consider getting a less expensive car that will still meet your daily driving needs.

More Information:

Joy Mali is an active blogger who is fond of writing articles on Finance and educating people to monitor their credit report on regular basis to minimize the risk of fraud. Follow her on Twitter to know more on how to pick the right car for your credit.

Source: http://www.PopularArticles.com/article455440.html

Categories: Finance and auto loans

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