Financing.
Firstly you need to know your credit rating. Many people know for sure that they have "good" credit, but the financial institutions have a way of rating just how "good" your good credit rating is.
The bank will use a system referred to as a "Beacon score" (sometimes called an "Isaac" score).
- Beacon score below 500 is bad
- 500 - 600 is poor
- 600 - 700 is good
- 700 - 800 is excellent
- 800 plus is smokin!! The maximum score is 825.
For example, to get GM's zero interest rate, you have to have at least a 725 Beacon score. A salesman cringes when he sees a Beacon below 600, and is devastated when he sees one below 500. If yours is below 500, then be sure to bring at least $2,000.00 as a down payment and be prepared to pay a hefty interest rate.
They consider late payments, debt ratio, bankruptcies, etc. to derive these scores.
Call or visit your bank and tell them the make, model and year of the car you plan to buy, and ask them what the loan value is. The next step is to ask them what type of interest rate they can give you. This is where your Beacon score comes into play. Your own bank will already have most of your information they need to run a credit check on you, but they may still need to ask you a few questions, and will most likely need to call you back later in the day or maybe the next day. Ask them what your Beacon score is.
The loan value is the maximum amount that the bank is willing to loan you. It is also the top price you should ever pay for a car. Don’t get caught up in the notion that you need to put 10 or 15% down and then get the full loan value financed.
The bank will most likely ask you to put down 10-20%, and they may very well give you a loan for the full loan value. People often jump on a "zero down payment" deal (financing full loan value). The drawback to these deals is that if you decide to trade the car two years from now you may be "upside down". This terms means you owe more on the car than the dealer’s book says it’s worth (wholesale value). Bottom line - remember your total price should NOT exceed the loan value. If you always buy at loan value, you should not get into an "upside down" position.
Once you have the information (Beacon/Isaac score, interest rate, and loan value) for the vehicle you have selected, it’s time to shop around with at least three more financial institutions. You should definitely check with any credit unions in your area. Even if you’re not a member, it can’t hurt to contact them, tell them your situation and ask about their requirements for joining their credit union. Many credit unions have relaxed their requirements for membership in recent years.
A couple of online websites that specialize in auto loans are MyAutoLoan.com and RoadLoans.com.
Once you have contacted at least four financial institutions, you will have a good idea of what the current market situation is like, and you will of course have a pre-approved line of credit with the bank or credit union that will offer you the best interest rate.
A note of caution here--Don’t have 4 different credit checks run on yourself in a short period of time. Every time a credit check is done on you it will show up on the next report that the next financial institution runs. Creditors see this as you trying to borrow a whole bunch of money at once from different sources, and this can have an adverse affect on their decision to risk lending you money. The way to avoid this is to just order your own credit report from Equifax.com. That way when a dealer wants to run your credit you can tell them "No, I already know my credit score is 725" (for example).
Dealer financing is most likely going to be your last avenue for getting your car financed, but if your credit is way down on the bad side of good, it may be your only option. It will be a very expensive option if your credit is bad, because they will charge you a much higher interest rate in order to compensate for the additional risk they are taking by loaning you money.