Obtaining and remaining current on loans are both major aspects of establishing a strong credit history.
An auto loan may be appealing for college graduates soon entering the workforce, according to a recent release by Americans Well-informed on Auto Retailing Economics. There are several factors to consider when selecting an appropriate set of wheels.
It's important to create a budget. This should take costs well beyond the initial car payment - like insurance, maintenance, gas and taxes - into consideration. Several of these factors will be influenced by a consumer's credit report, according to the release, making this another significant factor in financing an automobile.
Those with a strong credit report may be able to obtain favorable interest rates on their auto loan. Because many insurers also view this as a sign of financial responsibility, premiums on auto insurance may be lower.
Some people in this situation may find it difficult to establish the credit history they need, with the Credit Card Accountability, Responsibility and Disclosure Act of 2009 now making it difficulto for individuals under age 21 to obtain a credit card. Consumers in this situation may seek a co-signer to take equal responsibility on their loan, meaning that late payments will also affect their credit.
It is also important to get acquainted with many of the finance terms associated with auto loans, like annual percentage rates, leasing and finance charges, according to the release. This will prepare consumers for the financial decisions they encounter further down the road.
"An understanding of the vehicle financing process is especially important for those just starting out on their own," Eric Hoffman, spokesman for AWARE, said. "Responsible management of their monthly car payments will put them on the road towards building a positive credit history."
Like with any other major purchase, it is also important to spend time shopping around. Talking to multiple dealers and printing quotes ahead of time can help consumers set their expectations before stepping into a dealership. It may also be helpful to meet with the appropriate financial institution to learn about loan options.
Consumers may also want to do their shopping during a short period of time in order to limit the number of inquiries on their credit report.
A recent report by Zillow.com showed that consumers spend an average of 10 hours researching an automobile purchase. This is comparable to time spent looking into major home improvements and is twice as loan as the average for researching a home loan.