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Debt Handling - Car Loans: Why You Need To Do Your Homework

Thinking about buying a new vehicle or refinancing the loan on your current one? Doing a little bit of research is an important step before you make that final decision.

You've got to know what your credit report looks like and find out your FICO score. This number isn't going to tell the entire story about your past history or how good you are at repaying your debts, but all lenders are going to use it. That means that whether or not your loan will be approved and the rate you get will be strongly influenced by this.

You can get copies of your credit report by contacting the three major agencies listed below. Take the time to go over the information they give you thoroughly.

  • Equifax: PO Box 740241, Atlanta, GA 30374; www.equifax.com

  • Experian: PO Box 2002, Allen TX 75013, www.experian.com

  • TransUnion: PO Box 2000, Chester, PA 19022; www.transunion.com

Now that you have your credit information, you're going to need to think about the loans. For instance, a zero percent loan may look awfully attractive compared to four percent or more, but it might not be. Depending on the circumstances, you might be better off with a cash rebate.

That's because four percent with a $2000 rebate and a three year loan gives you a monthly repayment that's $30 less. In the end, you'll save more than a $1000 over what you'd be paying on the zero percent loan. Use an online loan calculator to run the numbers for all the scenarios you're considering.

Make sure you have the financing set up before you go shopping, instead of waiting until you get there. You'll find out the cost of the loan in advance and learn what you can afford, both total and on a monthly basis.

This also gives you an advantage when bargaining with your dealer. Remember that part of the price they're offering will depend on whether or not they're making the loan. If you take the financing the dealer offers, you could get a lower purchase price. Run your options in advance to decide where to start with tradeoff amounts.

If the purchase price is low enough, you might benefit from accepting the financing offer from the dealer. You can always refinance right away - just remember that there are costs to do so that need to be included in your plans.

Having your financing set up in advance also means you can walk away from a deal you don't like. Remember that new cars are usually the same from one dealer to the next, so if you get a better deal somewhere else, you could just go there. Just be sure you keep service in mind when you make this kind of decision, as well as the final price.

Last, make sure you calculate the benefits and downside of leasing, versus a loan on a car, versus other types of financing. For instance, choosing to pay via a home equity loan could give you the cash you need, but the interest will be tax deductible. Many contracts don't even require you to spend that money on your home. If you're willing to be creative when you consider your options, you could save a lot of money.