In most of our lives there may come a time when we need credit. Whether you are in the market to buy a car, home, applying for a credit card or really anything. Most items, amazingly, seem to be financeable these days. However, there are some boxes we need to check before walking into a dealership, viewing homes or completing a credit application. The goal is to not have debt become a burden in our lives, so let’s take the steps needed to be confident the loan works best for our situation.
To help, here are my favorite five credit basics…
Show Yourself the Money
Basically show yourself on paper you can actually afford what you want to purchase. Not just the monthly payment, but also any fees, maintenance, dues and etc. that may come along with it. For example, a home doesn’t just come with a mortgage. Utilities are usually higher, maintenance cost (even for a new home), PMI, HOA dues, plus many others. These cost can add hundreds or even thousands of extra dollars per year over your regular mortgage payment.
Know Your Credit Score
Even if you know you have good credit, review it before applying for loans to insure there are no errors that could cause problems. If your credit is more, we’ll say “challenged”, you still need to know exactly what has been reported to the credit bureaus. Correct as many errors as you can before applying and be able to explain negative marks. Remember, with past economic downturns and a pandemic, bad credit will not automatically mean you won’t receive the loan, but you may pay a higher price for it.
Drive by the Bank
Having your loan financed through a bank is fine and it’s good to establish a financial relationship. However, there are other financing options available. Credit Unions are a solid financing option. To their benefit, credit unions tend to be smaller and more personable. They also, can usually loan smaller amounts. Many are often associated with an employer, trade, profession or union, and can be more willing to work with you if you have a few credit “dings”. If you decide to finance through the seller, watch the interest rate. It’s usually higher, but could still be competitive with other financial institutions. However, be sure to review the contract for any unusual stipulations before you sign.
Get Pre-Qualified
It can really help you to get all of the “paperwork” out of the way first by getting pre-qualified for the loan before you begin searching. This is mostly associated with mortgages, but it can also be done for cars, or pretty much any loan. Why bother? Because when a seller knows you are pre-qualified, they know you are a serious buyer, not wasting their time AND you are financeable. This can give you additional negotiating power for a better price and/or perks as they try to get you to finance with them instead.
Be Prepared to Walk Away
What?!? Do not be afraid to walk away from the table. Yes, you may want (or need) the house, car, or whatever, but if the terms are not affordable for your current situation, do not agree to the loan. There will always be other houses, cars, or whatever. It is much better to take a step back and regroup, and find something within your budget, than to struggle with a loan you cannot afford. You don’t want financial hardship to destroy, or nearly destroy, your finances, credit, health, or relationships.
Bottom line, there is a lot to do before you shop for credit, but it definitely helps in the long run. Be prepared and go in knowing your financial strengths and weaknesses. Confirm your ability to handle the full cost of the debt. A good rule of thumb, ask and answer this question, “Is the loan really worth the price you are agreeing to pay”? If isn’t, try negotiating with the seller. It really can’t hurt to ask. They may need the sale as much as you need the product. So…ASK!! If negotiation doesn’t improve the cost or terms, be prepared to walk away.
Hey, it’s time for you to speak up! Do you have any spend less tips to share? If so, email them to me, or message me on Facebook. I would love to feature some of the tips I receive in a future blog.
Until Next Time…
Thanks and Be Blessed
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