Build Your Credit with your Auto Loan

 

A low credit score can make getting a loan you need more difficult than you might realize. You may find yourself being refused a mortgage or credit cards, even if you have a steady income. Improving a low credit score to a higher level will help improve your eligibility for future loans, but how can you actually do this if you can’t find a lender willing to make you a deal in the first place?

 

Auto loans are a terrific way to boost your credit score, and car dealerships are much more likely to offer you an auto loan regardless of a poor credit rating. A car loan can be enough to demonstrate to other potential lenders that you are a low-risk applicant, paving the way for easier applications and fewer unmanageable debts.

 

Understanding Credit

There are two types of credit: revolving and installment. Revolving credit is based on a variable structure, with changing balances and payments. Credit cards fall into this category, as you can charge different amounts each month and pay your balance off as you see fit, as long as you pay at least the minimum monthly amount due.

 

Installment credit involves borrowing a fixed amount and adhering to set payments; you cannot borrow more or pay less than the agreed amount each month. These tend to be referred to as ‘closed-end’ accounts. Both types of credit appear on your report, but installment loans show that you are able to stick to a scheduled plan. If you can pay off your auto loan, lenders will view you as a worthier investment overall.

 

The specifics of your car loan will differ depending on the type of vehicle you need, the term, and your income. Dealerships tend to work with a wide range of lenders and will discuss your personal situation in depth. This usually helps to match your needs with your capacity to pay and prevents unrealistic rates that will only be problematic.

 

As your car loan is at a fixed rate that you and the dealership agree upon and is paid back over a scheduled term, you can rest assured that you will know exactly what’s expected of you from one month to the next. There is no risk of the amount you owe fluctuating, leaving you unable to meet the monthly payment. However, it’s still vital that you continue to make all of your car loan payments on time, every time. Though you may have a grace period, avoid actually using this as much as possible. The grace period allows you a little more time to get the payment together (typically just a few days) without facing a charge for lateness. While the grace period is helpful in emergencies, it can make a negative impact on your credit score and suggest to potential lenders that you may not necessarily be as reliable as you first appeared. 

 

Avoid Prepayment Charges

You need to make sure that your car loan has no prepayment penalty in the agreement. This means that if you were to get ahead in your payments, or completely pay the entire loan off far earlier, you could face a serious charge. Although the prospect of clearing your debt as soon as possible might seem unlikely, especially if you have money worries, there is no telling whether you will have the funds to do so in the future. Having this option open to you, without the fear of increasing your debt, can be a major advantage.

 

An auto loan can make a big, positive difference to your credit rating, but you need to be prepared. The first thing you need to be sure of is that you can actually afford a car without leaving yourself ill-equipped to cover other expenses that you have. For example, if you are already in debt to other lenders, consider whether you will be able to juggle these demands with monthly payments on a new car. It may be best to focus on paying off one or two of your debts first, leaving yourself more money with which to invest into an auto loan.

 

Still, used car dealerships are as important to Americans than ever today, and you will often get a better deal for your money at a local used car business. Used car dealerships will be more likely to offer instant approval for loans on all credit types, even if you have no credit at all. How is this possible? Well, perhaps you want or need a vehicle but have never had a credit card or any other loan. Someone living at home until their late twenties or thirties may fall into this bracket, especially if they have saved as much money as possible to buy their own property without needing to rent or be self-reliant.

 

Many lenders, particularly banks, would see a potential borrower with no form of credit history as a major risk. They have no way to know how reliable the individual is likely to be and leave them unable to secure the money they need so badly.

 

Making the Right Choice

Another way to prepare for your auto loan is to pick the right vehicle. Though you may want to get behind the wheel of your dream car, with a sleek body and an engine that purrs, you need to consider whether the extra cost is worth it.

 

Focus on the car you need rather than the one you want. Consider your everyday demands and responsibilities. Do you need a vehicle just to get from home to work, and back again? Do you have to drive the kids to school and back, as well as running lots of errands on a daily basis? Concentrate on your priorities and avoid letting the sharpest looking car drive you into debt you can’t manage. Getting the right auto loan for your income, your lifestyle, and your future can help you to build your credit score to a higher level.

 

Whatever you do, stick to your monthly payments, make sure there are no prepayment charges, and choose a dealership with a solid reputation. Over time, your credit report will show that you are a reliable borrower capable of paying back any loan in the years to come – and just think how much easier getting the money for that dream car will be then.

 

So why should you choose Eden Autos as the dealership to buy your next car from? In addition to offering numerous financial solutions for customers with challenging credit ratings, we are committed to providing the best hassle-free buying experience in the Delaware Valley. We have over 150 quality pre-owned vehicles in stock to choose from, and each comes with a 5-Day Unconditional Money-Back Guarantee. And every car and ruck we sell also comes with a Free Carfax Report and a 3-Month or 4500-mile Bumper-to-Bumper Warranty. So, stop by our dealership today and meet with one of our friendly, professional staff members, or view our inventory online.