With the high number of people maxed out on their credit, this is a very popular question. The answer is yes, but at a cost. No matter how bad your credit report is, you’ll almost always find a lender willing to take the risk of giving you a car loan.

Car dealers have long lists of lenders. When you apply for a car loan, they go to the top of their list and submit your application. They keep going down their list until they find a lender who’s willing to accept the risk. So if you have bad credit, you’ll end up near the bottom of the list, where the lenders take more risk, so charge a much higher interest rate.

2. Is it better to buy a preowned car if I’m trying to establish my credit?

When you buy a used car, from a used car dealer, you’re obviously going to be applying for a smaller car loan, which is a good idea if you’re trying to establish, or re-establish your credit.

However, be aware that some used car dealers have a “buy here, pay here” policy, which means they don’t register your car loan with a CRA (credit reporting agency), in which case you won’t be building your credit because the CRA doesn’t have a record of your car loan.

3. Can I use my trade-in for a down payment?

Many people use their trade-in for their down payment. That’s fine, but remember that a dealer will only pay you the wholesale value of your car, which is considerably less than it’s market value. If you sell the car privately, instead of trading it in, you’re likely to get a lot more for it.

You should also make sure your existing car loan isn’t “upside down”, which means that you owe more on the loan than you’ve already paid for it. Car dealers don’t like that.

4. What interest rate will I be paying?

It’s important to know and understand your interest rate. There are many different kinds of rates, like flexible, fixed, and so on. Make sure you know exactly what you’re going to pay over the full duration of your car loan, because a small difference in the percentage rate could cost you a lot of money by the time you’re finished paying off the loan.

Also keep in mind that your interest rate is determined in direct relation to your credit record. If you have a good credit rating, you’ll get a low interest rate. However, if you have bad credit, you’ll be charged a higher rate because you’re a higher risk.

5. How long will my car loan be?

Car loans are designed to keep your payments as low as possible, so you’ll be able to afford them without any stress on your budget. That’s why lenders are now offering longer terms, some up to 6 years.

6. Will shopping for a car loan affect my credit?

Every time you apply for any kind of credit, it’s recorded on your credit record. Although that may seem unfair, it’s done for your protection. For one thing, it prevents you from overstepping your credit boundaries and getting in over your head.

Also, it protects you from identity theft, which occurs when somebody steals your personal information and uses it to obtain credit in your name. For that reason, it’s a good idea to subscribe to a credit monitoring service, which will notify you every time somebody applies for credit in your name.

7. What is direct financing and can I use it for a car loan?

Direct financing, sometimes known as independent financing, is the borrowing system where you get your car loan directly from the lender. The lender could be a commercial bank or credit union, a savings and trust company, or an independent or private lender.

Your other alternatives are dealer financing or online financing. Keep in mind that when you get dealer financing, you usually pay a higher interest rate because dealers add a couple of percentage points to the interest rate that the lender has given.

8. Should I negotiate the price of a car?

The experts recommend you keep your car purchase and your car loan separate. Strange as that may sound, it actually works in your favor. If you combine the two systems, it gives the lender a fairly open door to swing the scales of profit to his side.

Your best bet is to get an idea of how much you want to spend on a car, then get pre-authorized for your car loan, then go and choose your car. If you know how much you have in your pocket, it gives you more confidence and stronger bargaining power in getting the best price you can.

9. How long does an application take to be processed?

If you’re applying for a direct lender or dealer car loan, you’ll usually get your answer within a day or so. If you’re applying for an online car loan, you’ll get some kind of response within the hour.

The response you get may be just to acknowledge the application and let you know it’s being worked on. Or you could get a definite answer within a few hours. It differs with the different online lenders, but they usually let you know up front.

10. Is getting an online car loan the best way to go?

Online car loans is becoming a big business these days, mostly because of its speed and convenience. All you have to do is fill out an application, which will take you about one or two minutes. Then you wait for approval, which usually comes with one business day, at the most.

Online car loans are becoming so popular for a number of reasons. First, with the constantly changing interest market, you’ll be locked in at the current rate at the time of your application. Another advantage is that the companies offering online car loans are actually agents, who have access to hundreds of lenders waiting to approve your loan. When there’s that much competition, you’re sure to get the best interest rate.

In Conclusion

Car loans aren’t something to be taken lightly. They’re a big part of your budget and can affect your life in a very negative way if your payments get out of hand. So it’s very important to consider all the facts and figures before entering into a contract.

There are many sources of car loans these days but, as we mentioned, online car loans are probably the best way to go right now. More and more shopping for all kinds of things is being done online and it’s not going to slow down. The predictions for online shopping in the near future are phenomenal.

So we suggest you sit down at your computer (where, by the way, you can shop around for all makes and models of cars), and check into some of the great online car loan websites. As we said, it’s a highly competitive business, and the lenders want to grab as much of the market share as they can. So you’ll have no trouble finding the best online car loan for you!

Related Resources:

1st-in-Loans.com – your complete online source for all kinds of information for all kinds of loans, like car loans, motorcycle loans, RV loans, and boat loans

1st-in-Credit-Reports.com – make sure your credit report is in good standing. This site tells you everything you need to know

About the Author:

Arden Mellor is a successful homebased freelance writer, one of experience and diversity. The knowledge brought to you through Arden's articles has been designed for simplicity. The world is much too complicated, and Arden’s contribution to the world is to bring the complexities of life into a simpler arena, one that anyone and everyone can understand and use. Arden writes many informative articles on such topics as home equity loan company, programs & solutions and individual dental insurance plan, and our wishes are that you benefit from the wisdom presented in these articles in making life simple.

This article on the "Top 10 Questions about Car Loans" reprinted with permission.

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