How to Get a Car Loan (Even Without Perfect Credit)

It is important to know what your credit is. This is true in general, but it is especially true if you are planning to finance a car. Knowing your credit score allows you to know that you are getting the best rate possible. Checking your credit report regularly can also help you protect your score by disputing any inaccurate charges or records on your credit. Reporting agencies like TransUnion, Experian, and Equifax are required to provide your score for free on an annual basis.

The standard unit of determining credit worthiness is called a FICO score, which is named after Fair Isaacs and Company, the firm that pioneered this scoring process. Your credit score changes over time, and moves up and down based on factors such as opening up new lines of credit, paying off older accounts, and so forth. According to Fair Isaacs and Company’s website, a FICO score is based on 5 factors with different weighting: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%).

As a consumer you are entitled to one free credit report for each of the three main credit bureau companies (Trans Union, Experian and Equifax) per year at no charge. The website to receive and view this data is https://www.annualcreditreport.com. By viewing your credit reports each year, you can pick up on errors in reporting and have them fixed before you make a purchase. Catching these errors sooner rather than later will save you headaches down the road. Achieving and maintaining an excellent credit score is important because people with higher scores are more likely to be approved for loans and have access to lower interest rates.

If your credit is less than perfect, you can still get an auto loan, but you will pay a higher interest rate than someone with excellent credit. One way to save money is to opt for a shorter-term loan, such as a 3- or 4-year loan instead of a 5- or 6-year loan. Your monthly payments will be higher because you are paying off the debt sooner, but shorter loans tend to have lower interest rates than longer term loans.

A car loan can also be a good step towards repairing a credit score that is not as high as you would like. Because payment history is the most heavily weighted category at 35% of the total score, and is also one of the “good” types of credit used, taking out a car loan and making timely payments can begin to repair a credit score quickly. According to Craig Watts, consumer affairs manager for Fair Isaac Corp. “The mantra for getting a great score is pay your bills on time, keep account balances low, and take out new credit only when you need it.”

If you are interested in a car loan, be sure to check out http://www.nhcarcredit.com.

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