Before you seek preapproval for a car loan,
there are some things you can do as far as a year in advance (if you are
that forward-thinking) to improve your credit score and improve the
chances that you will get a larger loan if you need one for the car of
your choice. Here are some tips for convincing lenders to 'go all out'
for you when it comes to your preapproval:
down debt: If you have a lot of credit card or other debt (such as
title loans or mortgages), it will reflect poorly on your ability to pay
for a new car loan unless you have significant income above and beyond
your monthly payments. What banks and credit unions like to see before
offering a car loan is that if you have many credit cards, they are all
carrying relatively low balances (less than 50%). If you have the time
before you need to buy, you should pay down your other debts or loans as
much as possible before applying for your car preapproval.
any collections: If you've had a few 'issues' in the past with your
credit that have lead to your account being placed in collections, you
should deal with that right away before you apply. Having one or more
accounts in collections is a sure way to sour any lender and may
relegate you to the subprime lending market before anyone will approve
be late: For as long as possible before you shop for your car, you
should stay on top of all of your payments, both to your debts such as
credit cards or loans, but also to your utilities and other bills such
as your rent/mortgage and utilities. This is because if you are
significantly late on any debt you owe, it may be reported to the credit
reporting agencies and damage your chances of getting a loan in the
Build up your down payment: Having a strong down payment built up for your car does several things for you:
It convinces lenders that you are serious about doing your part to borrow less from them and make this deal work.
It gives you significantly more negotiating power at the auto dealership.
may help keep you from going upside down in the value of your car.
Since cars depreciate immediately after leaving the lot, if you have
paid atleast 20% down on your vehicle, that depreciation is much less
likely to catch up and surpass how much you owe on the car.
order to maximize your credit before getting preapproval, you should
get a copy of your credit report from the three major credit reporting
agencies; Equifax, Experian and TransUnion. Study it carefully, note any
errors or mistakes, and write to the CRA in order to have mistakes
removed. Then deal with any other issues you find such as paying down
debts or making any collections accounts 'disappear' by negotiating or
paying off the debt.