Auto Loans and Why Your Credit
Score Matters |
By Brooke Sikula |
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Other than the purchase of a home, the purchase of a car may be the
most significant purchase most of us will ever make. In fact,
when you add up the purchase price of all the cars we buy in our
lifetime, it can easily exceed the price of the average home.
With all this money at stake, it is important for every car
buyer to understand how car dealers and lenders use credit
scores to determine interest rates and loan terms.
There
are many numbers in our financial lives, from credit card
numbers to bank account numbers, but perhaps no one number has
as great an impact on our financial life as does the simple
three digit credit score. Simply put, the higher your credit
score, the lower your interest rate will be, and vice versa.
While those with the highest credit scores and cleanest credit
ratings will typically have their choice of many different car
loans at great rates, those whose credit is damaged will
typically be forced to pay a higher interest rate.
One of
the most important things the savvy car shopper can do is to
carefully review his or her credit report before shopping for
that great car. It is a good idea to know what lurks in your
credit report before the search for the car begins.
One
of the reasons this credit report review is so important is that
it is not at all unusual for credit reports to contain errors. A
recent review by a consumer advocacy group found that up to half
of all credit reports reviewed contained at least one error, and
with this kind of error rate chances are good your credit report
contains at least one inaccurate entry. Knowing what is in your
credit report ahead of time will give you time to change it. If
you notice an inaccuracy, be sure to report it to the credit
reporting agency at once, and to follow up a few weeks later to
make sure the error has been corrected.
With the credit
report thus repaired, it is time to start searching for the
perfect car, and the perfect car loan. There are many places to
shop for an auto loan, including at the dealer, at your bank or
credit union, and at various finance companies. Shopping around
at all these sources is the best way to find the best possible
deal. It is important to carefully review the interest rate, the
loan term, and of course the monthly payment when comparing
loans. |
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