Know your Credit Score Before you apply

How bad is your credit? It may not be as bad as you think. If you walk into a car dealership without knowing your credit history you are at their mercy. They can basically tell you whatever they want and it will cost you when you get a high interest rate. Some car dealers will lie to you and tell you your score is lower than it is, thus justifying why your interest rate is so high. First and foremost you most know your credit score. Do not rely on the free credit reports because they will not give you your score. The money you pay for a complete report with the score included will be minor compared to what you may end up paying in excess interest for being ignorant. MyFico.com is one service that will give you all 3 scores.

You must run your credit report. There may be some things on there that will greatly affect your interest rate. Some bad credit can be corrected. First and formost get rid of any bad blemishes you can dispute. Close any open credit cards you don't need or use. Pay down or pay off your credit cards. Do not blindly apply for a loan and get declined or get a high interest rate because of factors you can control. If your score is below 620 you will a subprime buyer and you will pay the higher interest rates. Each lender has its own definition of what constitutes a subprime borrower.

Apply online for a loan first.

There are many lenders that will finance subprime buyers. It is in your best interest to get approved before you go to the dealer to buy. This way you know exactly what interest rate you should be paying. The dealer will not do what is in your best interests and you may end up paying more than you should. Shop around, because rates will vary from lender to lender.

If you want to use the dealer for financing.

It's ok to use the dealer for your financing as long as you are prepared for their tricks. Have a copy of your credit report in your hand so they cannot lie to you about your score. Know what the current loan rates are and let them know you will not accept a higher rate. Be prepared to get up and leave if they won't meet your demands. Most dealers have access to many lenders and if you push them hard they will shop the best rate. One place to look for the interest rates on cars is BankRate.com Just because you have bad credit does not mean you should be bullied into accepting a deal you are not happy with. Just say no thanks and go to another dealer.

Here is a list of questions you must ask when in the finance office:

1. What is the precise (to the penny) price I am paying for the vehicle?

2. What is the total amount being financed?

3. What is the dollar amount I'm paying for the credit (finance charge)?

4. What is the exact amount of each payment?

5. What is the total number of payments? Dont get sucked into a 6+ year loan to get your payment lower.

6. Very Important! Is this deal contingent on getting subsequent approval of the financing from a third party? Watch for the "Subject To Financing" clause on the contract. This is where they nail you. they send you home with a so called approved deal and call you several days or weeks later to inform you that the financing fell through and they can't get you the rate they quoted, but they found a lender who will cover the loan at a higher rate. Make sure the deal is approved by the lender before leaving the lot. If there's any question, tell the dealer you'll come back and get the car when everything is settled.

7. Is there a pre-payment penalty if I pay this loan off early?

We advise you to get your car loan online and bring it to the dealer. This allows you to focus on the selling price of the car instead of the monthly payment. You can also use your online approval as leverage against the finance office at the dealership. If they can beat your loan approval you can consider them for your financing.

Buy Here Pay Here as your last resort.

You have tried every lender and have been denied. You have looked at your credit report and know why you are being denied. At this point you must decide how bad do you need a car? There is one final way to get a car. There are many "Buy Here Pay Here" dealers so don't get strong armed into a car that does not fit your needs. Be very careful that you are buying a quality used car or you will end up with a piece of junk that is in the shop more than on the road. Many of the smaller dealers buy unwanted auction and wholesale cars that may not be in very good shape. You have the option to walk out of any dealer that is trying to sell you a high mile piece of junk. There are a lot of big dealers that sell quality used cars that offer in-house financing. Always explore your options before you sign anything. You should avoid any dealer that is offering 20% + loans. You should expect to pay around 18% or lower.

Bring the right paperwork to speed up the process. Most dealers want the following paperwork when you process a loan with them. Have the following items in your folder when you arrive at the dealer. Drivers License, Proof of Auto Insurance, Financial Info (bank and credit card account info), Social Security Number, References, Proof of Employment and paystubs, Proof of Residence, Current phone bill or other utility bill), and a down payment. We advise you to call the dealer first to get an exact list of what they require.

Find out what type of payment do they take? Do you have to deliver the payment or do they take payment over the phone or online? What is their late payment policy? If you are late on a payment you do not want to wake up and find your car has been repossessed overnight. Do they sell low mile quality vehicles? It is in their best interests to sell quality cars but there are dealers out there that sell junk. Do they report to the credit bureaus? You want your good credit history with them to be reported to help build your credit score back up.

Repair and improve your credit!

Bad credit can be fixed. It takes time but it is worth the effort. Although you may be in a high interest loan today, if you work hard at improving your credit your next car loan will be much lower. Watch out for credit repair companies that promise to fix your credit fast. If you are going to use a credit repair company make sure they are reputable.