When getting a car, there are a few (legal) ways to go:
No. 1 – Inherit your late grandmother’s Pontiac Bonneville. We recommend this route, because you only have to pay taxes on the vehicle upon transfer of title, and also – Pontiac Bonneville. Pretty sweet. Maybe have it tuned up and let it air out, though.
No. 2 – Buy a car with hard cash. This is also a highly recommended way to go. It’s easy. Just take a giant stack of cash out of your pocket, and fan yourself with it until one of the salesmen at the dealership offers you an espresso and a test drive, and then … well, you know where we’re going with this.
No. 3 – Get an auto loan from a reputable, FDIC-insured financial institution. This is the way to go for those who don’t inherit their vehicles or can’t purchase their vehicles with cash, i.e., the rest of us.
Lending can be a tricky business. The long and short of it is that lending money is risky. A lender never asks “Is lending money to this party risky?” They ask, “How risky is it to lend money to this party?” Lenders are not rich uncles (though if you have one, maybe think about giving him a call or at least sending a card for his birthday). They don’t know you; they only know what industry standards measure your creditworthiness to be. Usually, that means your credit score and possibly a few other financial basics, such as your monthly income.
So when going shopping for an auto loan lender, there’s one thing you might consider doing first: checking your credit score. The big three credit reporting agencies (Equifax, TransUnion and Experian) offer yearly free credit reports that you can request on their websites or over the phone.
Once you have your credit report, be prepared to learn a little about what it means. Here are links to some resources for learning just that:
Credit.com – What is a good credit score?
CreditKarma.com – Understanding Credit Score Differences
MyFICO.com – About credit scores
With your credit score from one or more of the credit reporting agencies in hand, you can begin get a picture of how to measure your own creditworthiness, which may give you insight into how lenders may view the risk of lending to you. This may reveal some good information, and remove some of the surprise from the experience of getting credit offers.
Then, when you’re ready, you can go with No. 3 above, and do it right by being informed.