Getting a car loan https://citrusnorth.com/title-loans/ can be a great solution for an individual looking to build or rebuild their credit: especially for young adults, people with bad credit history, individuals who have declared bankruptcy and new immigrants to Canada. The purchase of a vehicle is an important responsibility and whoever undertakes it must make sure to take it seriously and make all its payments without fail when they are due. If this prescription is followed, this responsibility may be an excellent starting point, especially if you are considering an even larger loan.
How a car loan could help you build your credit
When a lender evaluates your credit report, there are several factors that can be used to determine if your credit is adequate and if you qualify for a new loan. One of these factors is the variety of types of loans you already have – a balance between open loans, such as credit cards and closed-end loans, such as auto loans, student loans or mortgages is a marker of a good credit record. As you probably already have a credit card, getting a car loan is one of the best ways to combine business with pleasure and achieve that balance with getting a loan installment. Having a variety of loans in your history, as long as you never miss your payments, you will certainly be beneficial.
Auto loans can be easily refinanced
In contrast to a mortgage, a car loan is a low-cost, short-term alternative. This means that you risk less when you get a car loan in order to build your credit. In addition, the low costs and short duration of these loans mean that they are much easier to obtain than a mortgage. Even so, if your existing credit is low, or if you have not yet built a credit file at all, your initial interest rate may be a bit higher than normal; however, remember that refinancing options are much less restricted than in the case of a mortgage and so, after a few years, you might find yourself with much more affordable monthly payments. If you do not miss any payments, you could take advantage of this option every two years to lower your interest rate and, consequently, your monthly payments … while improving your credit rating!
Payments can be flexible
If you get your financing directly from the dealer, the loan you get will probably be closed with fixed payments, but if you get your loan through a third party ticket, you will probably be able to make an additional payment in addition to your fixed payments. when you have a surplus in your budget, which will help you build an excellent credit history while bringing closer the date when you will finish paying for your car. You will also be able to pay a larger deposit than the amount requested by the financial institution when you obtain your loan, or when refinancing. This flexibility will allow you to better tame your payments and your loan and will allow you to finish much earlier than a closed loan from the dealer.
Tips to make sure your car loan really improves your credit
Have already saved a down payment before getting your loan
As you begin to consider buying a car, your first step should be to save. A deposit paid on the purchase of your vehicle will affect not only the total amount you borrow, but also the number of payments you will have to make over the life of the loan. So the more you pay for your purchase, the less that your loan will cost you in total, the less you will have to pay each month and the less difficult it will be to pay what you owe in full before your loan comes to term.
All of these factors will make your loan easier to pay. It will, therefore, be more likely that the effect of it on your credit report is clearly positive.
Choose an affordable car
This goes without saying, but a car that is at the extreme of your budget will have payments that are more difficult to maintain. A missed payment can be harmful to your credit, as well as your financial health. Remember that the purpose of this exercise is to rehabilitate or simply to establish your credit report, so in order to help you yourself, so choose a car convenient, economical and affordable that will suffice for your needs; the loan will therefore also be an affordable loan that will meet your needs and financial goals.
Make full payments before their due dates
It is imperative that you make your payments when they are due. No matter how much you pay, your payments should be a top priority. Your payment schedule must be respected because a single missed payment, a single partial payment can seriously damage your credit rating and undo all your good work.
Be aware of the status of your credit report
As you work to build your credit report, it’s important to keep up to date with its growth. In this way, you will be able to see both your progress and the effect of your financial choices and activities on your file and react without delay if there is an unexpected effect before it becomes an insurmountable obstacle. Contact Canadian credit bureaus (Equifax & TransUnion) & ask for a copy of your credit report once a year.
A car loan, if thoughtfully and judiciously obtained, can be a great tool to improve your financial health. Follow our tips and stay informed about the status of your credit report and loan and you will have no trouble getting back on track for financial prosperity.