With interest rates now hitting an all-time low, consumers are taking advantage of this on big ticket items like cars. If you’re planning to buy or lease a new car in the next twelve months, you need to make sure your finances are in order so the process won’t leave you tearing your hair out.
First, assess your current financial situation. Can you truly afford to buy or lease a new car, or would it be a better idea to get by with the old clunker for a little while longer? Even with low interest rates, a new car won’t be a good deal if it means you have to reach for your credit cards to pay your other expenses. You understand your situation and budget better than anyone else, and doing your homework before you enter an auto shop will help you set a payment you can actually afford.
Once you can say for certain that new car payments won’t break your budget, next you need to examine your credit rating, because your lenders certainly will be. They’ll request information from the three credit bureaus when determining how big a risk you are, and for any other information that may tell them you’re not trustworthy with your money. Consequently, the information found on your credit report will also determine the interest rate the lender will give you (if they extend the offer at all.) Consider getting your report at annualcreditreport.com so you’ll be on the same page as your lenders.
If you happen to find inaccuracies on your credit report, make sure you correct them before applying for the auto loan. Look for any discrepancies or other mistakes on your report, and dispute anything you feel is inaccurate by following the instructions included in your credit report.
If your credit history is less than stellar, realize right now that there are no quick fixes. At the same time, if you aren’t in a hurry to get that new car, you can always try to boost your credit rating over the next three years or so because many lenders focus only on your recent activity. Pay your bills on time, cancel the cards you aren’t using, and try to minimize your available but unnecessary credit; this is the credit you don’t always need, but always tempts you to buy something wherever you go. Make a budget that lets you pay your bills off one at a time, centering your focus on the accounts with the highest interest rate first.
If your credit is fairly bad, having a co-signer with may make it easier to obtain a loan. This is a pretty big step, so before you go about asking someone close to you to co-sign, make sure you both know what that means: a co-signer is, for all intents and purposes, guaranteeing that this debt will be paid. If it turns out that you can’t pay the bill, the co-signer will be forced to pay anywhere up to the entire amount of the debt; if they’re unable to pay, their credit rating will also go down in flames and late payments will go on each of your records. Obviously, you would never intend to put your co-signer in this situation, but nothing in life is certain and unexpected expenses (like hospital bills) do occur. How much are you willing to risk that your life will be stable enough to cover the bills and leave your co-signer in the clear? Think hard before you make that decision.
The purchase of a new car is supposed to be a pleasant experience, choosing just the right car for yourself with all the nifty options-and let’s not forget that new car smell. Preparing financially for the experience ahead of time will ensure that everyone, including you, will leave the auto dealership happy.