Low Interest Car Loans

In a perfect world we would all pay cash for every car we bought. No financing, no payment, no interest, no additional debt. It’s not a perfect world though, is it? No, almost no one has $5,000 to $25,000 to buy a car they can count on, so they have to finance. The best advice I can offer (as obvious as it seems) is to look for low interest car loans.

First of all, there’s something you need to acknowledge before you ever go car shopping, test drive one you like, and fill out a loan application – car loans with low interest are reserved for people with good credit. I know that’s not what you want to hear, and it really can complicate (or severely delay) the purchase of your next ‘ride,’ but it’s a fact you can’t get around. If you want to get a really good rate on your car loan you’ll need to have a credit score in the neighborhood of 700 to 750.

And not only that. All types of lenders are tightening their qualification processes, which means your good credit alone won’t be enough. They’re also going to look carefully at your overall debt profile and decide whether another payment will be too much for your given level of income. If you can’t pass their ratios, it’s going to be no loan for you. And what are those ratios? Any conservative lender will not want your new payment to put your monthly payment to monthly income ratio higher than about 25%. Really aggressive lenders will still only be comfortable with about 33% payments to income ratio.

So here’s a plan for you to be ready to buy the car you want, and still get a good low rate car loan.

1. Get a free copy of your credit report and examine it carefully for two things: blemishes and mistakes. You need to do everything you can to clean up that report if you want a lender to give you a good interest rate. If there are mistakes on your credit report, write a letter to the credit agencies explaining the error.

2. Elimiate other debt. Set up a more strict montly budget for yourself, and make an aggressive plan to pay off credit cards, store credit, and other outstanding balances. Paying off debt will free up money for your new car payment (so your income to payment ratios look better), and it will also improve your credit score. Oh yeah, not to mention that it just feels great to have less debt!

3. Look for ways to increase your income. Ask for a raise, apply for a promotion, or think about starting a small side business. If you could add just an additional $500 per month to your income you’ll have more than enough to make the payment on your new car, and you’ll have the satisfaction of earning more money.

I really hope you’ll follow these steps for the next few months. They’ll make your overall financial situation much stronger, and they’ll make it ten times easier to get a low interest car loan.