Car loans are one of the most popular kinds of loans available to people in the modern world. Being a relatively newer concept than something like personal loans, car loans are increasing in popularity each year. They are similar to regular loans in the fact that they still consist of taking on some money that will be repaid later. However, the one major difference between normal personal loans is the fact that only the car is held at stake in a car loan, as compared to other property in personal loans.
Car loans are a great opportunity for people who cannot afford to pay huge sums of money all at once, as most car loans are paid off in installments. Moreover, the installments often come with a number of different plans that can mean no interest on top of the loan. Beyond feasible repaying methods, car loans are a great way to improve your pre-existing credit score or establish a good credit score. Car loans are far more accessible and personal than other kinds of loans, and this makes them a great way for people improve their credit history. Let us look at how car loans improve credit score.
Car loans affect your credit history in the following ways:
Add a Variety to Your Credit History
A person’s credit history is not just determined by a single loan, but by the different kinds and number of loans taken over the years. The two most common types of loans that determine credit history are revolving loans and installment loans. Revolving loans are something that you pay repeatedly. On the other hand, installment loans are something that is paid up to a certain time and finished afterward. Installment loans are car loans or something like student loans. Since people normally tend to have credit cards these days, the revolving loan is covered. With a car loan, you can add an installment type loan to your credit history and diversify it. A varied credit history is more attractive and shines a better light on the person.
They Are Easily Refinanced
Normal loans are very expensive, sometimes overly lengthy, and hard to refinance. A good example of that would be a mortgage. On the other hand, car loans are far easier to handle. They happen to be relatively cheaper, while also having a very short time for payback. Car loans are generally very low risk. A person possessing a normal credit history only has to pay an above average interest. Another fantastic aspect of car loans is the fact that they can be easily refinanced. If a person happens to have a good credit history with paying their installments, they can opt to refinance their loan every 2 years or so. This brings down their interest. Thus, having a good credit history means having the option to dictate your own payments and loan specifications.
Car loan payments are often flexible
Car loans can be flexible depending on where you get them from. A dealership selling you the car often has fixed loans. However, an independent or third-party lender can offer you flexible payment options. This makes it easy for you to pay off your loan. You can easily pay more than the normal amount on installments or even have a larger down payment initially. Paying more than normal, means you get rid of the loan quickly. This helps you build a credit score that is respectable and desired by banks and companies, especially Canadian ones.
How to ensure that the credit history is improving
With such great effects on credit history, car loans are highly desirable for all those seeking to improve their credit scores in Canada. However, you must know if your credit history is improving or not. Here is how to find out:
Have the money for a down payment
You need to be positive about what you are going for. A down payment is normally a requirement for many car loans. Therefore, before taking on a car loan, you need to have sufficient funds for a large down payment. A large down payment eases the pressure on you that the coming installments bring with them. The greater the down payment, the smaller the loan. In addition, the ease with which you pay off your loan is what dictates the improvement in your credit score.
While trying to improve credit score, missing an installment is suicide. Therefore, you must take a loan that is not too much and can be afforded by your finances with ease. Hence, purchasing a car that is affordable by your own standards is necessary while taking a car loan.
Make Payments on Time
Since you are trying to improve your credit score, which is essentially your reputation, you need to pay all the installments on time. Paying on time gives you a good reputation, and the reputation of the diligent customer helps improve your credit score.
Keep a Check
The only way to see if your credit history is improving or not is to check on its growth. Contact the Canadian Credit Bureaus for all information pertaining to your credit history and current credit score.
Car loans are one of the best ways to improve your credit score in Canada. You just need to expend some effort on managing them.