Studies have proven that people of color tend to pay more when financing a vehicle if they do not do their homework. The key to driving the best deal home as it relates to financing is to have a keen understanding of the credit process. As of 2001, “The Consumer Credit Score Disclosure Act” now provides all consumers access to their credit/FICO (Fair Isaac Corporation) score.
With all of the tools available today, there is no need to remain in the back seat as an uninformed consumer when getting the best auto loan and interest rate. So, before you go shopping for a car, get pre-approved for your loan.
Would you go shopping for a home without knowing how much you can actually afford? Well, why would you buy a car without first shopping for the best loan? By following the steps below, this should keep you on the right road and save hundreds to thousands of dollars over the life time of your car loan.
- Access your credit score and report. By accessing your credit score and report via the credit reporting agencies, Equifax, Experian or TransUnion, this will not affect your score. Yet, if you allow your lenders to access your credit report and score, this could affect your credit score.
Unfortunately, many consumers are still in the dark when it comes to retrieving your credit score. According to Fair Isaac, when you access your report yourself, it will not affect your credit score. However, when a lender or multiple lenders request your credit report within a 14-day period, the score counts multiple inquires as just one inquiry. In addition, the score ignores all inquires made in the 30 days prior to scoring. If you find a loan with in 30 days, the inquiries won’t affect your score while rate shopping (searching for the best interest rate).
- Review and analyze your credit report for accuracy. To learn the ins and outs of establishing, re-establishing or maintaining your credit and the credit scoring system, read “Understanding Your Credit Score."
- If there are inaccurate items on your credit report, this could affect your credit score, the interest rate you’re assigned and/or decrease your chances of being approved for a loan. The higher the credit score, the better chance you have of receiving a lower interest rate.
- If there is inaccurate information on your credit report, take the appropriate steps provided by the credit reporting source to resolve any concern. Make sure you provide appropriate documentation to resolve your concern.
- It is time to go loan shopping! Seek approval for a loan through more than one source. Remember this will not affect your credit score depending upon the time period you secure the loan. Get pre-approved for a loan via a secured online source, your financial institution and/or credit union prior to purchasing a vehicle. This will save you time and energy from accepting the assigned rate by the finance department of a dealership. If you are apart of a church credit union, you may want to accept the rate being provided by the credit union since you’re aiding the growth of your religious institution. You could view this as a form of tithing.
- Once you have been pre-approved with an interest rate you’re now in a position for the dealership to make finance arrangement for you. See if the dealer is in a position to match or lower your pre-approved rate. If your rate is better than what the dealer offers, stay with your approval source. This same process can be utilized when seeking a home, boat, motorcycle, credit card interest rate or personal loan. Do you know the total cost of the loan and if there is a prepayment penalty for paying off the loan early? Before you accept any loan, make sure the loan amount, the interest rate, the term of the loan and the total cost of the loan is what you agreed to.
- If you believe the interest rate you have is too high and you did not get pre-approved prior to buying your car or if your credit has improved since purchasing your vehicle, consider refinancing your loan through our secured on-line financial institution, your bank or your credit union. What do you have to lose? You may find that you’ve saved yourself some money.
By following the aforementioned steps, this should aid you in avoiding predatory automotive lending practices. Other outside factors that may control your automotive interest rate or approval for a loan may include but isn’t limited to your work history, income, previous car-payment history, length of time at present residence, debt level, and/or the down-payment.
A number of car companies also offer special interest rates to first time buyers, upcoming and/or recent graduates of a 2-year or 4-year institution of higher learning. Visit College Incentives for more details. These tips should help keep you in the driver’s seat.
Until next time, drive safe and buckle-up. It could save your life!
Jeff Fortson is an Atlanta-based automotive consultant who holds a car-buying workshop to aid women and minorities with purchasing their vehicles. To find the latest information on pricing, financing or servicing a vehicle, visit his Web site at www.jeffcars.com.
