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6 ways to make cheap auto loans cheaper

[Dec 20, 2010.]


Cheap auto loans and credit scores

There's a very real and direct link between your credit score and the interest rates you're likely to be offered on auto loans--and, indeed, other forms of credit. So anything you can do to drive up your score--even in the short term--could pay dividends.

There's plenty of advice on the web about how to do that. The Federal Reserve has a web page on the subject, and MSN Money and Investopedia have both recently run relevant features. But to save you wading through all those, here are the six basic steps you should take:

  1. Pay on time--If your credit score's low, you've probably missed some payments in the past. Don't panic; that's not terminal. But be perfectly punctual making payments for as long as you can before you apply for auto loans

  2. Keep down your outstanding debt--When your credit score is compiled, the percentage of your available credit that you use (your "credit utilization ratio") is measured. If each of your balances is 30 percent or below your credit limit, your score should receive a boost. Even if you can't manage that, be aware of it, and keep your spending low during the month before you apply for auto loans. And keep that expenditure down even if you pay your balances in full, because your score is likely to depend what those balances were at the end of that month, before your payment is received

  3. Keep your mix of credit varied--Your score may suffer if you have too many open accounts of any sort, but especially if your mix of installment loans and credit cards seems unbalanced

  4. Be selective about making credit applications--Don't apply for too much new credit in a short period. It's likely to set off alarm bells, and drive down your score

  5. Keep long-term accounts--The length of your credit history is an important factor in calculating your score. There's not much you can do about that if you're young, but older people may be well advised to discard newer cards and lines of credit before older ones

  6. Query inaccuracies--Check your credit report (that shouldn't affect your score), and make sure it's correct; a surprisingly high proportion of them contain errors. If yours is one of them, then query the mistake, even if it's minor. Some advise that you should do so in writing, keeping copies of correspondence, and using a postal service that provides proof of delivery

Don't worry if you're unable to act on all these recommendations. It's been a long time since it was last as easy for people who have less than perfect scores to get auto loans. But anything you can do to make yours higher may help reduce the rate you have to pay.

If you're ready to apply today, check out competitive quotes for auto loans now.


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