Cars do not come cheap. Whether you’re purchasing a new or used vehicle, chances are you probably don’t have the full amount saved. This is where a car loan can help.
A car loan lets you borrow a certain amount of money to pay for your vehicle, which you then repay over a period of time. But before you rush out and lodge an application, you need to first consider the impact this can have on your credit score.
Each time you apply for finance it is recorded on your credit report, regardless of whether you are approved or not. If you apply for a car loan (or any other type of credit product) with multiple lenders at a time, it can negatively impact your credit score.
Credit bureaus factor in the number of applications you’ve lodged when calculating your credit score. If you’ve submitted multiple applications within a short period of time, this can indicate that you were previously rejected.
Lenders are then more likely to see you as a “risky” borrower and deny your application for finance.
Rather than lodging several applications at once and hoping for the best, do your homework first. Take the time to compare a variety of car loans to find one that is best suited to your needs.
When comparing loans, look at things like the interest rate, length of the loan, associated fees and whether you can make extra repayments.
To reduce the likelihood of your application being rejected or your credit score taking a hit, make sure to do the following:
You can obtain your credit score for free through several reporting bodies and it only takes a couple of minutes. Knowing your score will give you an indication of how lenders may view you as a potential borrower. If your score is average or below average, consider a bad credit loan to help repair your credit profile.
It’s important to be in control of your current debts before taking on more. If you have debt spread across multiple accounts, consider the benefits of a debt consolidation loan to help.
Could you possibly reduce this amount to help get your application over the line? Will you be able to afford your repayments if you’re approved?
Remember, the cost of car ownership goes beyond the price of the vehicle itself. You’ll also need to factor in car insurance and registration, along with ongoing maintenance costs.
Taking out a car loan is a big financial decision. But if you’ve done your research and you’re financially secure, it can be a useful way to manage your cash flow if you can’t afford the cost of a vehicle outright.
Written by Bessie Hassan
Bessie Hassan is the head of PR & Communications and a money expert at Finder. An accomplished public relations professional, journalist and editor, Bessie has written for a range of publications including the Sydney Morning Herald, The Australian, Marie Claire, Women’s Health, and more. Bessie has a passion for helping Australians find better financial solutions.