You’ve researched the perfect car to buy and the perfect time to buy it. But have you checked your credit status? A quick review of your credit line before you visit dealerships can save you both time and money when you are ready to make your deal.
1. How much can I loan from a bank?
This quantum is very much dependent on the OMV (Open Market Value) of the car you arepurchasing. The regulation applied is that if your cars OMV is $20,000 and below, you can qualifyfor a loan of up to 60% of the purchase price (including the COE and related taxes). If your OMV is above $20,000, them the loan amount will be 50% of your purchase price (includingthe COE and related taxes). The rest of the purchase price has to be raised in cash.
Are your credit card balances high? Reducing these or paying off small debts can sometimes boost your credit score and save you money on a loan.
A few months of prompt bill payments can improve the way lenders view you.
2. Don’t overextend yourself.
Brand new sports car vs. used and practical? Before you decide which car is right for you, it’s a good idea to see how much you can really afford.
After all your other bills are paid each month, how much do you have left to put toward a vehicle?
Do you have a trade-in or down payment? These can help you negotiate a better rate with lenders and can be especially important if you have problem credit.
Calculate your debt-to-income ratio by dividing all your monthly payments by your gross monthly income. Make sure to add in your expected new car payment. A ratio greater than 30 percent may be a red flag to lenders.
3. Do your financing homework.
Applying for an auto loan doesn’t have to be stressful if you arrive prepared. Consider the following:
Be ready to discuss your income, occupation, home loan and credit history.
To negotiate the best loan, check the rates banks and credit unions will offer you before visiting a showroom to make your final deal.