Many people know that they need a high credit score to get a loan. A high credit score means that there is a lower chance that the money will not be repaid and the easier it is to borrow money. However, it is not widely known what goes into a credit score.

Credit bureaus use information about each borrower that is taken from a number of sources. Former employers, current employers, the number of residences a person has had in the last five years and whether or not the borrower owns his/her own home all provide some input data. In addition, a person’s credit history is examined and how often bills are paid on time is considered. Credit bureaus also look at legal issues such as civil suits, judgments, bankruptcies and criminal convictions which may affect a person’s credit.

All of these items go into the evaluation of a person’s credit. The end result is a determination of a person’s capacity, character and collateral - the three Cs of credit.

# Capacity is concerned with a person’s ability to repay the loan. The lender evaluates the borrower’s income and compares it to current expenses. The length of time a person has been at his/her job, the number of dependents and any alimony or child support payments are also considered. Not only does capacity involve a person’s current financial condition but it also considers future potential income - as would be possible for doctors, lawyers and professional businesspeople.

# Character is a judgment of a person’s willingness to repay debt. By checking into past credit history a lender can determine if the applicant is living beyond his/her means, if he/she is overextended or has been delinquent in paying bills. Character also reflects a person’s honesty in giving accurate and complete information on the application. Judgment of a person’s character also includes an examination of a person’s stability - how long has the applicant been at his/her current employment and how long has he/she resided at the present residence.

# The third C is collateral. Since there is always the chance that a person will be unable or unwilling to repay the loan, lenders often require collateral (generally property is used to secure the loan). If the borrower defaults on the loan, this property can be seized and sold so that the lender can recoup the money lent. The value of the collateral is directly tied to the loan. A car loan may require the car as collateral, a property loan may require the property as collateral. Sometimes, a lender can require money as collateral. A Certificate of Deposit or an annuity may be pledged for the loan. In all cases, if the borrower fails to pay, the asset is seized as repayment for the loan.

So you’ve found a car you want to buy and as with many people you don’t have the cash in hand to buy it. Just about anyone can get a car loan nowadays even if they have bad credit. But it is important to get the best deal possible on your auto loan and not just go to the first place that is willing to hand you the money. Here are some ideas for getting the best deal on your car loan.

Manage Your Credit

Before you even look at a car to buy, you should know your credit history. All consumers are entitled to a free credit report, which can be accessed online. View your history to find out if there are any discrepancies that need to be fixed. Any errors can affect your auto loan rate. Fixing them now will save you a lot of headaches in the future.

Know How Much You Can Spend

Just because you want a Porsche doesn’t mean you can afford it. Sit down with your monthly bills and determine how much money you have in your budget for a monthly car payment. And don’t forget to you will need to have full-coverage insurance on a new car, so determine how much that will cost as well. Of course this cannot be fully determined until you know what type of car you are purchasing.

Consider What Your Down Payment Will Be

The terms of your auto loan will determine how much you pay now and how much the auto loan costs overall. Remember that a low cost now may not mean low total costs for you in the big picture.

For example, most borrowers choose a low down payment because it’s easy to manage today. However, that choice increases the total cost of your auto loan and usually leaves you ‘upside-down’ (meaning you owe more on the vehicle than it’s worth) for years to come.

Consider Disability and Life Insurance

When you ask various lenders what they’ll offer you, you may find that you need insurance to get the best auto loans. And not just auto insurance but disability insurance and life insurance. Some lenders are concerned that something could happen to you and you wouldn’t be able to pay them back.

Having insurance might not be a requirement, however you should know all the details if you already are insured.

Shop Around for the Best Rate

You don’t have to get your auto loan through the dealership. Shop around for the best rate. This is simple but it is often overlooked. Check with local banks, credit unions and online financing services.

Avoid Prepayment Penalties

Things change in life and flexibility is important. Your auto loan should also be flexible. Find a lender that will allow you to make extra payments or pay off the loan entirely without any penalties. Be sure and read the fine print before agreeing to any loan.

Find the best deal on the auto insurance coverage you need. Visit us today for money-saving tips, information about cheap auto insurance quotes