How to Purchase a Car on Credit
- 1). Obtain copies of your credit reports. Federal law entitles you to one free copy of your credit report, every 12 months, from each of the credit bureaus. You can order your free reports at AnnualCreditReport.com. Approval of your auto loan will be based largely on your credit score, and you should know where you stand before speaking with a lender, according to bankrate.com. Scores range from 350 to 800 points, and people with scores of at least 620 are considered to have good credit. Generally, the higher the credit score, the lower the interest rate. Consumers with bad credit can obtain financing but may pay very high interest rates.
- 2). Study your credit reports for any inaccurate information that could be lowering your score. A mistake in your address probably isn't hurting anything, but a delinquent credit card account that does not belong to you should be addressed. Check the credit report for a customer service number and call to dispute any inaccuracies.
- 3). Start shopping for a loan after addressing any issues with your credit reports. Many banks and credit unions will issue pre-approval for a certain dollar amount, and this can help you decide how much car you can afford. Look for the best interest rate as you shop around. Speak with several loan officers and tell them about your credit score and income. Based on that information, the loan officer may be able to tell you the interest rate you are likely to get. Formally apply once you have found a loan to your liking. This is a critical step if you are planning to purchase the car from an individual.
- 4). Begin shopping for a car after your loan application has been approved. You may have to limit your search to dealers if you were turned down for financing by banks because of poor credit. The dealer may be able to arrange alternate financing through lenders comfortable with financing consumers with bad credit.
- 5). Find the car that you want. Tell the dealer you have already been approved for a loan, or tell him you wish to apply for credit through the dealership. The dealer will contact your bank to begin the paperwork needed to close the deal. Or he will have you fill out another application for alternate financing. Wait for credit approval through the dealer, if necessary.
- 6). Review the terms of the loan, such as the monthly payments, interest rate and the length of the loan. Pay a down payment, if necessary, and sign all the paperwork before driving home. Check with your loan officer if you are buying from an individual and will be using your approved bank loan. She will provide you with the forms and paperwork you will need to buy the car and pay the private seller.