Whether you’re
working on improving your credit health after a bankruptcy or just
getting started as a borrower, making car payments on an auto loan is an
excellent way to establish or build your credit score.
Before you
take out that big home mortgage loan, business loan or finance that
designer furniture set, you need to prove to lenders that you’re
creditworthy.
Car loans help you do just that for the following reasons.
Auto Loans are Installment Loans
When
lenders and credit reporting bureaus look at your credit history, they
want to see a good mix of installment loans and revolving credit.
Revolving loans include credit cards and home equity loans. Installment
loans include student loans, mortgages and auto loans. In most cases,
it’s not feasible (or wise) to take out a student loan, home mortgage or
home equity loan simply to build your credit. It’s much easier to
qualify for and pay off an auto loan, which makes it the best option for
improving your credit health.
Auto Loan Refinances are Easy
As
a borrower with no credit history or bad credit, you’ll pay a premium
for your first car loan. Don’t be surprised if you’re hit with a double
digit car loan interest rate, especially if you’re emerging from
bankruptcy. But the good news is that after one or two years of making
your payments on time, you can refinance for a lower interest rate if
your credit score has improved (which it will have, if you haven’t done
anything else to negatively impact it).
You can refinance
every few years and continue to get lower interest rates until you’re no
longer paying the subprime rate. This is all made possible because,
unlike home mortgage loans, the origination fees and other closing costs
of a car loan are typically very low and the payback period is
relatively short.
Car Payments are Somewhat Flexible
As
long as you avoid loans with early payment penalties, car payments are
very flexible. If you get a low monthly car payment, you can elect to
make extra payments or double payments whenever you have extra cash.
Paying off your loan early not only saves you money on interest, it
reportedly boots your credit score faster as well.
You can also put down a larger down payment from the beginning or when you refinance to get a lower interest rate.
Overall,
having an installment loan in good standing on your credit history is
important to establishing or improving your credit health. A car loan is
one of the easiest, most affordable and most flexible installment loans
you can get. Keep this in mind as you embark on the road back to good
credit.
Randy's Auto Sales
10993 Central Ave
Ontario, CA 91762
909-591-4116
www.randysautosales.com