I'm trying to purchase a new car. I'll need an estimated loan of
$15,000. My credit score is a 650. Based on the current interest
rate in my area (Atlanta), what would be the best rate I could expect
to find? The dealers' rates have ranged around 12 percent to 13
percent, but I believe I can do better with outside financing. I
already know my credit score and I don't really want anyone else
to run it unless I borrow from them. Please help!!
-- Niya Newer
I agree with you that even with a credit score of 650, you can do
better than dealers' offerings of 12 percent to 13 percent. Beyond
your credit score, another factor influencing the interest rate
you're being offered is the size of your down payment. If you're
trying to buy a car with no money down, the lender will increase
the interest rate because of the additional risk. The old adage
is true; a new car really does depreciate as soon as you drive it
off the lot.
When shopping around for a secure loan, like
an auto loan or mortgage, multiple loan applications in a short
period of time don't hurt your credit score. What's meant by a short
period of time is roughly over a four-week time period. The assumption
used in the credit scoring model is that you aren't buying several
homes or several cars, so it's fairly evident that you are comparison
shopping. Here's what the myFICO.com Web site says about multiple
inquiries for secured loans:
Looking for new credit can equate with higher risk,
but most credit scores are not affected by multiple inquiries
from auto or mortgage lenders within a short period of time. Typically,
these are treated as a single inquiry and will have little impact
on the credit score.
You're not going to be able to get credit without
the lender running your credit report and score, but you can shop
around for rates without applying for a loan by using Bankrate.
While the survey results show rates for a borrower with a higher
credit score than yours, some of these lenders have loan programs
for people with lower credit scores that will still be much more
competitive than the rates dealers have shown you so far. If you
are a credit union member or eligible to join a credit union, you
should look at those loan rates as well.
If you can't find a lender willing to loan you
money for less than 10 percent, you should regroup, work on improving
your credit score and consider buying a used car as a short-term
strategy to meet your transportation needs.