Avoid Common Automobile Finance Mistakes

Probably the most common automobile finance mistake that car buyers make is failing to check their credit report and score. A low credit score or a history of paying late on debts can cause big problems for the buyer. Generally speaking, the lower your credit score, the higher your interest rate will be. Furthermore, you may not be able to borrow the amount of money needed to purchase the car you want. There are three credit reporting bureaus that receive reports from lenders and other creditors. Your credit score is like a guidepost to lenders. They will judge your potential reliability to repay the automobile finance loan. Often credit reports will contain erroneous and inaccurate entries that negatively affect your credit rating. You can’t fix a problem if you don’t know about it.

You should request a copy of your credit report along with your credit score each year. You will then have the opportunity to dispute and correct inaccurate credit reporting. The better your credit score the more negotiating power you have when it comes to automobile financing. It may be advantageous for you to repair your credit to increase your credit score before you seek automobile financing.

Do not trade in a car unless it is paid in full. Often when you trade a car that has an outstanding automobile finance loan amount, dealers will offer to pay off that loan and add the payoff amount to your new loan. This is a type of loan consolidation. A problem may develop for you and your credit rating if the dealer does not pay the old car loan as agreed. Additionally, the dealer will offer you less for your trade-in if you owe an outstanding debt. When the dealer does not pay the old loan before the next installment payment is due, you may receive a call from the lending institution. This can also be reported as a late payment to the 3 credit bureaus which will have a negative effect on your overall credit score.

Do not sign a contract for automobile finance if the dealer tells you that he or she uses a credit bureau other than Equifax, Experian, and Trans Union. A common scam that some dealers use to charge a higher interest rate is to use a credit reporting company that will return a lower score. They then use this score to justify charging you a higher interest rate. Do not do business with a dealer who does not use Equifax, Experian, and Trans Union to obtain your credit score.

Finally, you need to understand the FICO Auto Industry Option credit score. This is a secret report from Equifax, Experian and Trans Union that is available only to automobile finance dealers. This score is generated from your history of buying cars, making car payments, and car repossessions. If you have no history of car buying, as is the case with first time car buyers, the credit bureaus will generate a low FICO Auto Industry Option score even if your overall credit score is high. This makes no logical sense, but it is how automobile finance institutions do business. You may be required to pay a higher interest rate, even with overall good credit, if you are a first time buyer.