Car Buying 101: Credit Essentials
Intro
Credit... what is it? The quick and easy answer is: unless you have saved up enough money to pay for a vehicle up front, the only other way to finance through the dealership and take one home is to pay the dealer in monthly installments for ownership of it (financing), or to pay them for the use of the vehicle over time (leasing).
Much like every decision you make, there are pros and cons to consider before you actually apply for credit, so listen up!
The Advantages
With good credit, many financial opportunities open up to you. Many transactions on big-ticket items (like cars) are done on credit. Using your credit to lease a car, purchase a new home, or purchase anything else can be convenient and in many cases to your advantage. Because credit is a form of payment, it is also commonly used in everyday purchases such as rental cars, restaurants, hotel rooms, and that new hoodie you've had your eye on.
The Other Side
Credit is convenient, but (as much as you wish it were) it's not free. When creditors grant you credit, they give you financial flexibility - the freedom to pursue the opportunities you just read about. But there's a cost. Creditors charge a fee for that financial flexibility. Every creditor has a different way of charging you, too. So it's very important that you always review all the documents given to you and the terms of your credit before you enter into an agreement with a creditor.
There are a few things that you need to know before you fill out a credit application. On the credit application, you'll be asked to "assess your credit." This is the part where you're going to have to be completely honest and give a fair assessment of your financial habits.
| I use my credit wisely and never miss a payment | Congratulations, you have an excellent credit rating |
| Been pretty well with my credit, but missed a few payments | Your credit rating is good |
| I should have paid closer attention to my credit and paid my bills on time | You have fair credit |
| My credit is messed up OR I don't have a credit history. But I really want a vehicle. | Your credit rating is poor/no credit |
Which one truthfully best describes you? Great. You now know a little more about your financial self and you're probably eager to learn more. But before you go, Grasshopper, arm yourself with a little more knowledge about our credit estimators.
Based on your answers, the auto loan financer will provide you with an estimate of your rate. However, these estimates are all based on averages, and they can at best only give you a ballpark figure. So while you'll have a good idea on how much you'll be paying, keep in mind as you enter the dealership that it's not the final word on your credit. Your dealer can help you figure out a plan that's right for you.
Reprinted with permission from Toyota Financial Services (ToyotaFinancial.com ).
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