Five Ways to Make Sure You Qualify for New Car Financing

It's not just fear of a recession or high gas prices that are keeping car sales down.  It's the credit crunch.  Since most buyers can't fork over tens of thousands of dollars for a new car, they need to finance the purchase.  That means borrowing money at a time when most banks don't want to lend it. After years of easy car loans for most buyers, the money train has come to a stop amid record loan defaults and car repossessions.  It's no wonder lenders are skittish.

That said, there is credit available for those who need a new car and can prove that they're worthy, responsible buyers. Here are five ways to make sure that you get the financing you need for the new car you want.

1. Clean Up Your Credit Score

That guy on TV who's always singing about his credit report is right: if you don't keep an eye on your credit score, it can come back to bite you. You should always keep your credit report clean and your credit score high. That means not maxing out credit cards, paying bills on time and making sure your account is free from fraudulent activity.  Most lenders are now looking for credit scores in the 700's for new car loans. 

To get your score, contact a credit reporting bureau like Experian or Equifax (you can get your credit report free once per year, but will have to pay extra for your actual score). If your score is not as high as it could be, take a few months to polish it before you go car shopping. Pay off outstanding accounts, put the plastic in a drawer until you can pay it off, and resolve to keep your credit clean from here on out.

2.  Have a Down Payment

More lenders will be willing to finance your new car purchase if you bring a down payment to the table. Why? Bringing a 10 to 20 percent down payment shows the lender you're responsible and capable of saving for a purchase. That responsibility also shows them you're more likely to pay the loan back. It helps that the down payment brings down the amount of money you'll need to borrow, too. So even though you won't have to pay for the full value of a new car, start saving.  A down payment is a key part of getting financing.

3. Shop Around

This tip is key even when the credit market is good: shop around to find the best loan for you. Not only will you have more lenders to work with, but you may end up getting a better deal. Before you go to the dealership, contact several lenders to see what kind of loan terms they offer.  Don't forget to check out credit unions; they may be more forgiving of past credit mistakes. When you get to the dealership, see what kind of financing they can offer as well. Cast a wide net for credit and you're sure to find something. Stay on top of manufacturer financing offers. As car sales weaken, some automakers are using financing incentives to lure buyers in. Shop around for these deals.

4. Lower Your Price

It may be hard to turn your back on that BMW, but shopping for a less expensive car may improve your chances of getting a loan. A smaller loan means the lender is assuming less risk, so they may be more likely to approve it. The fact that you have your heart set on a premium brand doesn't matter to a bank. Besides, there are plenty of cars that offer similar style, amenities and driving experiences to expensive status mobiles. Choosing a cheaper car not only helps your chances of securing a loan, it means a smaller loan to pay back -- and that means more money in your pocket.

5. Don't Fudge the Numbers

Now that many loan applications are done online or over the phone and approved in a few minutes, some buyers can be tempted into fudging their numbers. Even though you're not filling out a loan application under the watchful eye of a loan officer, don't be tempted to inflate your income or deflate your other debts. For one, it's illegal. Also, getting a loan based on an income that's higher than what you actually earn is a recipe for disaster. You won't be able to afford it, you'll default on it, losing the car, and it will put a horrible blight on your credit report -- which means your odds of getting another car loan will go south in a hurry. Staying honest on your loan application to get the credit you qualify for.