What Can You Afford?
Reasons for Getting a Pre-Approved Loan?
How to get a Pre-Approved Loan
What's Your Credit Rating?
Improve Your Credit Score

How to Estimate What Monthly Payment You Can Afford

Experts recommend that your monthly car payment be 20 percent or less of your monthly take-home income. If you have two cars, the total monthly payments for both should still be less than 20 percent.

Remember that the price of the car you can afford will be different depending on how old the car is. Loans for newer cars generally have lower interest rates and longer terms. You may find that you can afford payments on a new car or a car that is just one year old more easily than you can on a used car. This has all been pre-calculated for you. To see a listing of cars that fit your budget, use Auto Mall to enter your "Down Payment" and "Payment Limit" range. The Down Payment is the money you have saved plus money you plan to receive from selling your current car.

If your current financial circumstances require you to stretch your car-buying dollar, look at other types of vehicles. Instead of a luxury sedan, perhaps look at a quality family sedan at thousands of dollars less. There are also several low-priced models that are excellent values. Check them out too. Maybe you can make your current car last long enough to save a larger down payment to make up the difference between the loan your monthly payment will buy and the purchase price of the vehicle you want.

Back to Top

Reasons for getting a Pre-Approved Loan

One reason buying an auto takes so much energy is that it is really many deals rolled into one: (1) financing the car, (2) setting the trade-in price, (3) setting the new car price, and (4) sell-ups such as extended warranty, etc. Experts agree that the best way to save money is to treat each deal as a separate transaction.

A good first step is to qualify for a pre-approved loan. It can't be emphasized enough how important it is that you have your financing lined up before you physically start shopping. First, being pre-approved will save you a lot of time at the dealers when you really want to drive away in that new car. Second, knowing that your financing homework is done will give you confidence, the feeling of having "cash in hand". Finally, this will make you independent of dealership financing, giving you more power in price negotiations. Other reasons:

• You won't be under time pressure in a dealer's F&I office. You can take time to look at the possibilities and decide which loan one is best for you. You can take time to find out your credit score and improve it if necessary. This could save you thousands in interest payments.


• You won't have to give your social security number and sensitive financial information to strangers and perhaps answer embarrassing questions. Your credit union already has most of the information they need for a loan application and you don't need to worry about identity theft.


• Your best loan may not be an auto loan. The interest you pay on a home equity loan or second mortgage is tax deductible and may be at a lower interest rate than an auto loan. Perhaps this type of loan may be to your best benefit depending on your income, tax bracket and other financial obligations.


• No surprises at the dealer's office. You know before you negotiate the purchase price that you have financing at hand. There is no need to worry that you may not qualify for a good loan or that an unexpected high interest rate or short loan term will "break the budget".


• Since your credit union has a vested interest in your loan, you may use credit union loan specialists to help you review the contract before you sign and explain anything you don't understand.


• It's much more difficult to understand if you're getting a good deal when the dealer starts talking about monthly payments. Pre-approval lets you keep the conversation focused on purchase price.


• Loans from your financial institution are simple declining balance loans. Dealer loans are often "Rule 78" loans where you pay almost all the loan interest the first year. If you have this type loan and "total" the car, or sell or refinance in the first year or two, you are more likely to owe more than the car is worth.


• Having a pre-approved loan means you have a simpler auto deal, fewer items to negotiate and check, and less opportunity for confusion.


• You visit the dealer with the confidence of a cash buyer.

Back to Top

How to get a Pre-Approved Loan

It's easy to fill out the online loan application forms: just click on the image in the upper right of the screen. You may need data from recent salary stubs, the outstanding balance from your other loans, and a copy of your income tax return. After you fill out the application, an email will be sent to you that confirms the amount and terms of your pre-approved loan. Alternatively, you can speak to a credit union loan specialist by telephone or at any branch.

When you are pre-approved, you have the assurance that you may borrow the money to buy the car you want and will know the term of the loan and the interest rate. Remember, it's much much easier and less stressful to get your loan pre-approved now, and you will save money with your credit union's low interest rate loan.

Back to Top

How to Find Out about your Credit Report and Credit Score

The amount of money you can borrow and your interest rate depends on your income, your debts, and your credit history. Your credit history is a record of your payments on outstanding loans, lines of credit and credit cards. Under Federal law, you may get a free copy of your credit history once a year: Free Annual Credit Report. You can also get your credit report by calling (877) 322-8228.

Your credit history is rolled into a Credit Score, which provides a short hand for lenders to assess their risk to loan you money. A loan specialist can search your credit report and tell you your credit score. You can also get online access to your credit score and other information at numerous websites such as:
Find Your Credit Score

Back to Top

Improve Your Credit Score

A low credit score will cost you a lot of money by raising your interest costs. It is a good idea to increase your credit score before making any large purchases, and to increase the score by as much as possible. It may cost you some money to work at improving your credit worthiness, but you will make it back many times over if you fix something wrong or use the information provided to significantly increase your credit score. The key is to get credit only when you need it (unless you're trying to establish your first credit); and then use it carefully, make your payments on time, and keep your balances low.

Here are some steps to repair your credit:

• Get your credit score by pulling your credit report. You need this key information, to know what to fix and how to fix it. Your credit score is determined by this breakdown:
  
  

  35% Payment history
  30% Outstanding debt
  15% Length of your credit history
  10% Recent inquiries on your credit report
  10% Types of credit in use



• You don't lose any credit points for checking your own credit report. You will lose some points if there a number of credit inquiries over time for applications such as credit cards, auto loans, department store credit cards, etc. If you are shopping for a car or mortgage, try and keep all your inquiries within a two week period, since credit scoring companies will treat all these as one "inquiry". Some online sites provide a Credit Analyzer to experiment with the effects of consolidating accounts, closing accounts, paying down accounts, etc.



• Make sure everything on your credit report is right. If you see something wrong, dispute it with the agency. You can dispute it by way of phone, letter, online or via email. By law, the creditor must prove the accuracy of what you are disputing within 30 days. If they don't, it simply gets removed from your report. If you have evidence that something is wrong, submit the evidence via USPS registered mail to the credit agency and they will have to remove the inaccurate data right away or prove that it's accurate. Even if you don't remember if it's accurate, dispute it anyway since the creditor will have to prove that the information is accurate.



• If you have any accounts in collections or that are very past due on your credit report, you need to get them removed to really increase your credit score. If disputing these items has not worked, you will have to contact the creditor or collection agency directly. One approach is to offer to pay 50% of your debt but only if they remove your bad credit history, and not just mark it paid. Make sure you get this in writing. Most agencies will take the opportunity to collect the bad debt and fix your credit report. Removing these items will dramatically increase your credit score since the adverse item will be completely removed. If you have already paid off adverse items, dispute it with the agency again since it will be their burden to prove it, and they usually won’t bother disputing since it's already been paid off.



• Your credit score will be higher with a higher ratio of current debt to available credit limits. If your credit needs some quick repair, and you have extra cash, pay down as much of your debt as possible. The flip side of this is to call existing credit card accounts and ask them to increase your limit, though you won't actually use it. Do not open additional credit card accounts to increase this ratio, since that may hurt your credit score.



• If you are carrying debt, try to keep the ratio of debt to available credit limits at around 40% with about four cards for the best credit score. Don't cancel cards if it will put you below this ratio, and if you have to cancel cards - make sure you only cancel ones with less than one year of history.



• Another way to help your score is by spreading your debt to different cards. Although you may pay more interest, your score will improve since no one card will be close to its limit. For example, if you have a $20,000 limit on one card with $18,000 of debt, and have another card with a $15,000 limit but with $2,000 of debt, it is better to move $8,000 of debt from the higher card to the lower card. By doing this you will lower your ratio of debt to credit line, helping your score even though you haven't paid anything down.



• If you have no debt and have had no credit history within two years, go get some! Even though you don't need to repair your credit, you need to create some credit history. This may sound strange, but it works very well since it shows you can borrow and pay back large amounts of cash. Begin responsibly using a credit card for as much as possible and paying it back in full every month. Or take out one of those promotional 0% loans from one of your credit cards, put the cash into an account, and pay it back slowly (but before the 0% interest rate expires -- and don't spend it!). You will notice your scores dramatically improve after you have paid back the debt. This will also create a credit history for you, and it's never too late to start building your credit.



• If you have a partner/spouse or relative with good credit, have them add you to their credit card. This works very well since you will get credit for their payment of bills, and this will create a more positive credit history for you.



• Pay your bills on time by having them automatically deducted from your bank account or paid online before they are due. Being consistently late with payments is the easiest way to lower your score. The easiest way to keep your credit improving month after month is to pay your credit card bills on time or early! Even if you can only swing the minimum payment, get the payment there before the due date.

Back to Top