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Credit Scores and Car Loans
With the average price of a new car in the $26,000 range, it makes sense to obtain an auto loan for your next car purchase. But auto loan rates can vary significantly based on your credit standing and other financial factors. A borrower with good credit may pay about 5% APR for an auto loan, while someone with bad credit could pay more than 20% APR. The following five tips can help you make the most of your credit when buying a car:
- Check your credit report and credit score first Too many car buyers wait for the dealer's financing office to tell them where their credit stands. Avoid financing surprises by checking your owncredit report and credit score online, for free.
- Leverage your credit scores Car buyers with great credit can use their credit standing to negotiate the best deal on a car.Car dealers understand that a borrower with excellent credit has the power to shop around.
- Comparison shop If you have decent to excellent credit, you should try shopping for an auto loan online. Online auto lenders offer rock-bottom rates to qualified applicants. If your credit is less than perfect, compare offers from credit unions, dealerships, and online lenders to find the best deal.
- Limit your loan applications While it is a good idea to compare loan offers and estimates, be careful to limit your actual applications to only a few lenders. Too many loan applications can damage your credit score.
- Consider a down payment Borrowers with credit problems can still get a great deal on a car if they are willing to fork over a down payment. Paying 10-20% of your auto price up front can help you save a bundle on your new car.
Understanding the impact of credit scores can make your car shopping experience go more smoothly. Start by checking your free credit report and credit score online before you buy.