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3 tips to snag a car loan on so-so credit

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If you have so-so credit and you need to buy a new car, take heart. The tide has officially turned. Lenders are happily giving out car loans, even to those with less-than-stellar credit. Car loans are up $35.3 billion — an increase of slightly more than 5 percent for the second quarter of 2012 compared to the same quarter of 2011, according to Experian’s most recent State of the Automotive Finance Market report.

At the same time, quarterly repossession rates are down by almost 28 percent on average over the same time period, making lenders even more comfortable with lending consumers money for a new car. What’s the result for car shoppers? Even if your credit is not the best, it’s unlikely you’ll face rejection when you apply for a car loan.

Follow these three tips to find the best auto loan rate.

Know where you stand. Review your current credit report to make sure all of the information is correct, fixing any errors you see before applying for a car loan. You should also learn your credit score, so you know exactly where you stand before applying. You can either pay the same fee for the score that comes with your credit report, or you can estimate your score for free with Bankrate’s FICO score estimator.

Tune up your credit if possible. If you can hold off on buying a car for a bit, give your credit a tuneup first. More than a third of your credit score is based on the timeliness of your payments. If you’ve been more than 30 days late on any payments, try to wait until those are no longer on your record. If you don’t have a history of late payments, you could ask the company that lent the money to remove the late-payment information.

In addition, aim for your debt-to-available-credit ratio to be as low as possible. It should be no higher than 20 percent, but 10 percent or lower is generally recommended. If you can’t lower the overall ratio by paying down some debt, consider spreading it out. For instance, you could transfer some of a credit card balance to another card because the ratio per card is also assessed in your score.

Shop around for a car loan. Don’t wait until you are on the dealer’s lot to see what interest rate it can get you on an auto loan. Lenders are more anxious to give car loans to people with less-than-stellar credit, so you are likely to find a better interest rate than what the dealer can offer through his or resources. Start by checking interest rates with your bank as well as local credit unions, which often have great auto loan rates.

Then, use Bankrate’s rate search tool to compare those offers with lenders across the country. Finally, visit the manufacturer’s website for the car you want for the rates that its finance company is offering. Most captive finance companies allow prospective customers to apply online, so you don’t have to rely on the dealer to tell you what rate you can get.

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If you have a car question, email it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories. Follow her on Facebook here or on Twitter @SheDrives.

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