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Looking for lower new-car loan rate

Dr. Don TaylorDear Dr. Don,
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

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Dear Niya,
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.

-- Posted: March 11, 2005




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