For most people, purchasing a car is a significant financial outlay. For many, this means accessing a loan which will help to shoulder the cost. And of course, finding a lender is not necessarily straightforward. However, making sure that your credit report is in order is an excellent way to give you the best chance of a loan. In turn, if you are able to pay back the loan in an efficient and timely manner, then it could help you spiral towards an even better credit rating.
Before even researching available car loans, the starting point should be your credit report. Although it isn’t the only criteria by which a lender will assess your financial responsibility, it is a significant component of their calculation. That is because it is a record of your repayments on all types of credit – Mortgage, credit cards and even utility bills. If your report is in good order, then it’s a real indication that you are a reliable borrower which is ultimately what any lender wants to know. Fortunately, you can access your credit report any time you want through one of the UK’s three registered agencies, including http://www.creditexpert.co.uk/advice/credit-rating. In fact, it’s really important to check your credit rating as it gives you an opportunity to correct any damaging inaccuracies before you apply for a car loan.
In the world of credit, car loans hold a special place. They are of course not quite the ‘good’ debt of a mortgage, but nor are they the ‘bad’ debt of a credit card. In many ways, they are a kind of half-way house – A car loan is a long-term debt which is usually paid in significant instalments. As a result, if you have a decent credit rating and are granted a car loan, it can be a good step towards building an even better credit report which will ultimately put you in a good position to access a mortgage. However, the one key to this kind of progression is to make sure that you pay back your car loan on time and in full. As much as it can be a big tick against your name, failure to pay back a car loan can be a massive negative too.
It is also worth noting that shopping around for a car loan can also impact your credit rating. A potential lender will almost always access your credit report, almost instantaneously. Each enquiry is noted down on your report. Many enquiries within a short space of time could raise suspicions that you are in urgent need of cash, ultimately counting against you. However, the system recognises that there is a certain amount of shopping around which needs to take place. Therefore, if you are applying to multiple lenders, try to do them all within a two-week period. Most credit reports will note this as just one single ‘hard’ enquiry.
If you are in a better financial position than you expected, it might be tempting to pay off your car loan early. After all, who wants to be in debt longer than necessary? Somewhat counter-intuitively though, from the point of view of your credit report, you may be better off sticking to the original payment schedule. Lenders like to see a consistent, long-term record of reliable credit payment. As a result, a longer payment plan might be preferable.
At the end of the day though, the relationship between your credit report and a car loan is mutually beneficial. A good report will help you access a loan, which if paid back efficiently, will ultimately improve your credit report.