Do you have questions on how your credit affects your ability to get an auto loan? Check out our extended list of the commonly asked consumer questions on credit.
What does it mean to buy a car on credit?
When you "buy a car on credit" you're getting a loan from the bank to purchase the car. The bank gives you money (the loan) and in return, it takes ownership of the car until all of your payments are made. These loans are usually paid back over a period of two to five years, although longer terms are available. Building up your credit score before buying a car on credit allows you to borrow money on better terms and at lower interest rates.
What are installment payments?
A loan installment is simply another name for a loan payment. It's the monthly payment that must be paid by the bank or lender in order to keep your account current. When you take out an auto loan, the lender will analyze your credit score, down payment amount, and monthly income before authorizing how much money you're eligible to borrow. They will then calculate an installment payment that you will be required to make on a monthly basis over the term of the loan.
Can I get a car loan with bad credit?
In most cases, the short answer is yes. However, if you have a lower credit score, you'll end up paying more for the vehicle because your interest rate will be higher. You may also be asked to make a higher down payment. And in some cases, the lender will ask for a co-signer to guarantee the amount you borrow.
What is a co-signer?
The term co-signer refers to someone (usually a friend or family member) who guarantees your loan. If you fail to make your payments or default on your loan obligation, the co-signing party is responsible for the amount outstanding on your debt. They are financially obligated to pay back the loan.
How can I improve my credit?
You can improve your credit by making timely payments on all your bills each month, especially any credit cards that you have. If you don't have a credit card, find a card issuer and open an account. Set a small monthly budget that you know that you can afford to repay. Then use your new card for spending within that budget. Set up online payments with your bank and then make those payments five days before they are due. Don't ever fall into the trap of carrying balances forward.