Your Car and Credit History

Lenders don't carelessly provide loans to whoever wants them. Lending money is risky and unpredictable, and auto loan agencies use your credit history to determine the safety of financing your car. There are two classifications for credit rating: A "prime lender" is someone with a score above 680, a "sub prime lender" has a score between 550 and 680, and a score below 550 indicates bad credit (but is still considered sub prime). Poor credit makes it far more difficult to finance the car of you choice.

It's easy to obtain your credit history from the internet, and you may be permitted to a free credit report every year (depending on where you live). By figuring out your credit score beforehand, you'll be protected from potential scams and other rip-offs. Learn what type of lender you're considered and plan your car hunt accordingly. If possible, build your credit up before you look for your next car in order to save money. Having a credit score good enough to earn you a quality loan will give you a lot of leverage when you visit the car dealership.

Sub Prime Lenders and Auto Loans

Perhaps you've applied for an auto loan, but were refused because you're "sub prime". Does that mean you can't get an auto loan? Of course not. There are tons of lenders chomping at the bit to finance your car. However, the interest rates increase considerably for those with lower credit scores. But there are a few things you can do to make sure your auto loan is still reasonably priced.

First, double-check your credit history. It may be inaccurate due to improperly submitted information. If so, you're credit score may be much better than you first suspected, maybe even qualifying you as a "prime lender". You should contact the credit bureaus with faulty information as soon as possible (writing to them is your best bet). It may not be your fault and it is certainly a hassle, but your credit score shadows your financial life.

Once again, don't finance at the dealer. They act as middlemen between you and the bank or financing company. You will inevitably save money by going through the lending institution yourself. If possible, acquire your loan before exploring the dealership. Also, online auto loan agencies will often save you considerable sums of money.

Finally, keep in mind that your credit history is ongoing and can be changed by living within your means. Pay your bills on time and avoid running up the balance on credit cards and loans to raise your credit score over time. Within a few years time, it's possible to raise yourself from "sub prime" territory. Learn what to look out for on the next page.